#24 - SEPTEMBER 2009 by CyberMedia (I) Ltd

Vol 2 / Issue 12 / Sep 09

/Rs 30

Subscriber copy not for sale

Offset opportunities from defense imports

12 businesses that are illegal in India Market research without spending a fortune Franchising your business

entrepreneur of the month/

Shekhar Agarwal, Priyagold Biscuits investor of the month/

Basics of credit ratings

Sandeep Daga, Nine Rivers Capital Atul Khekade, Netz Capital

Business of vending machines

columns/ The impact of drought The steady first step Brand ridicule Social currency of an entrepreneur

Legal formalities for startups Solutions to airlinesâ&#x20AC;&#x2122; problems

92 pages including cover

Vol 2 / Issue 12 / SEP 09

BOARD OF ADVISORS C K Prahalad

University of Michigan

N R Narayanamurthy

Chief Mentor, Infosys

Kanwal Rekhi

Chairman, TiE

Romesh Wadhwani Chairman & President, Wadhwani Foundation Gururaj ‘Desh’ Deshpande

Chairman, Sycamore Networks

Saurabh Srivastava Chairman, Indian Venture Capital Association Kiran Mazumdar Shaw

Chairman & MD, Biocon

R Gopalakrishnan

Executive Director, Tata Sons

Philip Anderson

Professor of Entrepreneurship, INSEAD

Shyam Malhotra Editor-in-Chief Abraham Mathew President Krishna Kumar Group Editor ANALYSTS Aman Malik Aswathi Muralidharan Binesh Kutty Manu Gupta Vimarsh Bajpai Vivek Kumar OPERATIONS Ajay Dhoundiyal Product Manager Prasanna Srivastava Product Manager VIjay Rana Design Anil John Photography SALES & MA Jaideep Mario Gabriel Abhinav Trivedi Dayanath Levaj Jagadeesh Kingshuk Sircar

MARKETING Associate VP West North South South South-East Asia

/opportunity

Offset opportunities from defense imports

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businesses that are illegal in India

DELHI D-74 Panchsheel Enclave Tel: 41751234 PUNE D/4 Sukhwani Park North Main Road, Koregaon Tel: 64004065 SECUNDERABAD #5,6 1st Floor, Srinath Commercial Complex, SD Road. Tel: 27841970 SINGAPORE 1, North Bridge Road, # 14-03 High Street Center Tel: +65-63369142 CORPORATE OFFICE Cyber House, B-35, Sec 32, Gurgaon, NCR Delhi-122001 Tel: 0124-4822222, Fax: 2380694 Cover Photo: Copyright Gripen International, Photographer: Per Kustvik

92 pages including cover

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SEPTEMBER 2009

A list of businesses that are punishable offenses

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/contents

opportunities/ The Private Weatherman ............................ 60 Vending Machines ..................................... 64

going global/

The Games Begin! ....................................... 88

Doing Business in Singapore

strategy/ Market research... ..................................... 26 entrepreneur of the month

Shekhar Agarwal Priyagold (Surya Food & Agro)

He joined his father and founder of the company, B P Agarwal, about 10 years back. Surya Food & Agro is now a Rs 500 crore company. Shekhar Agarwal speaks to DARE about the strategies, challenges, and his entrepreneurial journey in this business.

Airlines in trouble... ................................... 42 Debt or Equity for your Business? ............... 52

A world-class infrastructure, supportive government policies, and an access to a larger market in the Asia-Pacific region make Singapore an excellent destination for doing business

Franchising your business ......................... 54 What Does Your T-shirt Say? ....................... 58 event/ Opportunity for business incubation... ........ 25 TiE Business Plan Contest.......................... 29 Headstart: Travel Showcase... .................... 32

blogs/columns

Envision 09... ............................................ 68

Rupin Jayal ............. 20 Vijay Anand ............. 41

63 investor of the month/

Sandeep Daga Nine Rivers Capital and

Anurag Batra ........... 67 Paranjoy Guha Thakurta ... 82

Atul Khekade Netz Capital

based

brand

capital

come

business companies

company

cost country crore customers delhi donâ&#x20AC;&#x2122;t entrepreneur entrepreneurs experience growth help high idea india indian industry investment

look

make

management market marketing money need number people products second services start team technology think time used value venture want waste work world years

Opportunity/ Online mobile recharge

With the user base for telecom and DTH subscribers growing leaps and bounds, a number of third party recharge players are trying to tap into the market. What is the business all about?

policy/ Legal formalities for startups ...................... 38 The basics of credit rating .......................... 76

NEN / Next-Gen Entrepreneurs ............................. 78

others / Exchange ..................................................8 Feedback ............................................... 12 SEPTEMBER 2009 5

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blogs/edit

Two years and counting The best accolade we get is when our readers tell us that

ou may not realize it, but this is the second anniversary issue of DARE that you are holding in your hands. So, how come we are not out with a â&#x20AC;&#x153;bumperâ&#x20AC;? issue

and not screaming about it from the rooftops? Blame it on the economy if you will, but we have decided that it is not yet

we have made a

time to get the bubbly out and celebrate.

difference to them

We do have much to celebrate. For one, we have survived

and that they actually wait for the magazine to arrive every month

the hard times with our necks above the water. We won two awards including an international one along the way. We built our website spending under ten thousand rupees and today as much as 20 % of our traffic comes from social networks. We have also been able to handshake many entrepreneurs through our exchange program. But they are all minor. The best accolade we get is when our readers tell us that we have made a difference to them and that they actually wait for the magazine to arrive every month. The very best is when they actually ask us for help and advice to further their entrepreneurial journey. To all of you who have been a part of our exciting journey so far, thank you, on behalf of the small team here at DARE, for being partners in our journey of discovery. Thank you for being there and for giving us that small corner in your hearts. Hopefully, as we go along, we will discover more and will be able to enrich each other even more.

/Krishna Kumar

SEPTEMBER 2009 7

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PREMIUM

e are in the process of starting a tele-health service (a 24x7 medical answering services)

company. We are currently being incubated by KIIT University-Technology Business Incubator (KIITTBI). Our business plan HELLODOCTOR24X7 has won several business plan competitions. We are also

looking for an angel investor for our dream venture. Dr. Lalit Ranjan Manik

bringing out this inspiring magazine. I am a

regular reader of DARE. I have had a craving for starting a consultancy firm and your magazine has supported me a lot in understanding and facing the challenges of a start up. I have done MD from AIIMS and have served

one of the finalist on the IIPC 08 (Indian Innovation Pioneer Challenge) and in Power of Ideas. We are

t first, I would like to congratulate you for

industry for approximately 4 years. I started Worksure MedPharma consultancy in April 09 with a group of doctors from premier institutes like AIIMS and PGI Chandigarh. Also we have pharma professionals, PhDs, MBAs and engineers from IIT’s working

own an Internet social news website for Indian users, EffectiveNews.com. I looking for angel

with us. We are providing consultancy services to pharma, biotech, device industries, CRO’s and even hospitals. By God’s grace we have got a good clientèle

funders for my project. Via SMS

(four MNCs, three Indian Pharma, etc) and reasonable turnover in just 4 months period. Our work has also been appreciated by our clients.

ublished: August 2009

Now we are looking towards taking this startup

1. Sushil Garhwal represents an NGO, Pragati Ek

Kadam Welfare Society, which works for improving the livelihood of rural poor by helping them set up small businesses. He was looking for people to fund the projects. 2. Kumar represents IQ Kids, a play school chain with

to the next level. We want to flourish it as a unique CRO (A good mix of research, regulatory, marketing, sales and training at one platform) catering to above industries in India and abroad. We are having required expertise and talent to plan and execute it. We are on the lookout for venture capitalists who

a day-wise curriculum, and was looking for channel

will be interested in funding our plans and helping us

partners in th metro cities.

move ahead. It will be of great help.

Published: June 2009

Dr Ankit Pathak, MD (AIIMS) CEO, WorkSure MedPharma Consultancy

Bharti of Olive Touch, a health food supply company, was planning to expand operations and was on the lookout for investors. Response: August 2009 I take this opportunity to compliment you for valuable perspectives, data on information relevant for existing and prospective entrepreneurs. We are interested in contacting the R. Subramanian

making it into a retail chain. However, due to lack

of funds, I am currently trying to open an online store for my business. Since I have no experience in this, can somebody help me with this.

above mentioned people.

PREMIUM

have an optical shop in my city and dream of

Shahid Ali

Premium Exchange Requests are broadcasted via print magazine, our twitter posts, published on our website marketplace, and on one of our weekly e-newsletters. Premium Exchange Requests have an extremely nominal fee. For more details, contact Ajay Dhoundiyal at ajaydh@cybermedia.co.in or (91) 98106 90745

SEPTEMBER 2009

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e are an Internet based start-up company.

We are looking for a sales adviser or

years in Madhya Pradesh with a long term presence in

willing to outsource the sales activities on incentive

Mandla (130 Villages) and Bhopal city slums. We have

PREMIUM

have been working in the development sector in the area of sustainable livelihood for the last 15

a federation of 165 NGOs in Madhya Pradesh and have

based scheme. Rahul

a close network of more than 45 like minded NGOs. We are keen to setup a Vocational Training Center for people with disability and ex-serviceman leading to employment in corporate sector or self employment.

ublished: August 2009

We are looking for experts, partners, ideas, advice

Sumit Agarwal was planning to start a food

and mentors on the subject to proceed further.

venture in Gurgaon-Delhi-NCR, and was looking for

Capt. V.P. Singh (Retd.)

team members and people interested in the venture.

Sahara Manch Bhopal

Response: August 2009 I would like to contact Sumit Agarwal for supplying freeze dried food and herbs. Capt. Haripada Chakraborty

am looking for mentoring and guidance for implementing some of my ideas. My thinking is

related to rural/agricultural sector. Basically it is a service related idea, with little bit of technology and

I am an ardent reader of ‘DARE.’ In the last month’s

strong alliances building. I can conceptualize and

issue, there was a query by Sumit Agarwal who had

implement the whole idea, but

mentioned that he is interested in a restaurant business

I need somebody who can guide me/help me

and is on the lookout for a partner. I am looking forward

in alliance building. Can somebody help me or

to getting in touch with him at the earliest.

professionally join with me to build a brand? Imran Ali

have a business proposal that could find breakeven in the first year itself and there is a

ever expanding market readily available for the

Sandip

ublished: June 2009 Ashutosh Agarwal represents an investment

banking company in the US, and was interested in

services. I am looking for funds to the tune of

meeting project developers in the renewable energy,

Rs.50,00,000-1,00,00,000. The project will give an

water management and CDM project verticals.

assured return of 20% in the first year and 25% in the next consecutive years. I am looking at an exit

Response: August 2009

option of buying back the shares @ 250% of face

I have developed a method of recovering

value. Minimum investment period is 2 years.

heat energy to the extent of 65%. Kindly

Deepak Bijaya Padhi CEO, Multinet

PREMIUM

contact me if you are interested. Capt. Haripada Chakraborty

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We are a small firm located in Nasik, Maharashtra

am a regular reader of DARE. I am a CA intending to set-up a firm and looking for like minded CA

with a small infrastructure. We are looking for clients

professionals to join hands. Those interested can

who would like to outsource business to us related

contact me. Jagdish

to data entry and conversion. 1) We have an infrastructure wherein we can have two shifts for 15 hours at the moment with at least 15 agents in each shift for this project. We can ramp up in the coming months if needed.

have been a regular reader of DARE magazine. I have complete my education from VGSOM IIT

Kharagpur and I am working with an Indian retail

2) Our agents mostly are commerce graduates.

organization as a marketing manager. I already have

3) Currently we are working on a US project wherein

entrepreneurial experience in running an online T-

our agents speed is 30 wpm with accuracy

shirt design firm. I have recently resigned from the

of 99%.

services to pursue my interest in starting a crafts

4) The strategy of our quality depends on the type of the project; once we have a better understanding of the project we work towards the quality procedure

center in Chennai. I am planning to expand it further to other southern cities in due course. I am looking forward to pre-seed funds who would be interested in providing me with mentorship and funding.

and train our agents accordingly. Santosh Kumar S 5) Communication channels include, chat, Skype, and telephonic. 6) The billing part depends on the type of the process. We mostly have weekly or biweekly billing cycle

am interested in the mango kernel extraction business and would like to have more details on

the same. If found lucrative, I should be able to put

which is affordable for us. We can ramp up if needed as we believe in growing

up the project in the next 6 months. I have all the

with our clients.

infrastructure to set up a factory.

Jayant Kale, Deepak Pandey, Sagar Patil

PREMIUM

Sanjay Kothari

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SEPTEMBER 2009

Right help at the right time Timely availability of collateral-free loan made this entrepreneur survive the downturn with the shirt on his back intact hen Sanjive Mehta first started RS Barcoders Pvt Ltd in 1996, it was with the support of his wife and with his personal savings pulled out. An IIT Delhi graduate, with 13 years of experience in ONGC behind him, Sanjive realized that technology around the world was ng developing very fast and bringing it here in India was going too be an excitement and challenge he wanted to experience.

GOING IT ON HIS OWN Working at the oil and gas behemoth, Sanjive realized that the extensive amount of data that is entered is prone to errors and a slight mistake can lead to a huge disruption tion in the functioning function of large equipment—leading to losses of crores ores of rupees. Being an engineer from a premier institute, Sanjive had an open mind to innovations. When he read up, he foundd out about bar code, RFID (radio frequency identification) and fingerprinting technologies, which were ere being commonly comm used inn the industry ind in the US and Europe. e. He decided to then le leave ONGC C and bring these technologies gies home. He then set up RS Barcoders ers Pv Pvt Ltd, a firm specializing izing in providing Automatic Identifi Iden cation and Data Capture(AIDC) solutions to its clients. A MODEST START When he started, he had, apart from his ow own qualification and experience, his wife, who hadd a biotechnology biotechno background, a couple of software coders, one marke marketing person and a rented accommodation. The monthly outgoings, apart from the equipment that was imported, were about Rs 50,000. The going, obviously, was tough in the beginning. However, having started fairly small in 1996, the company grew to service large clients.

LONG PAYMENT CYCLES His job orders usually ually involve importing bar coding and other equipment from om abroad, abroa customizing its software for his clients’ needs eds and delivering a complete solution to his clients. The payment nt cycles stretch to all this th time. With a basic advance, and the rest furnished from his po pocket, Sanjive imports these machines. And then the he final payment comes days and months after the solution has been capital, therefore, is a coveted een delivered. Working cap commodity. There would be outstandings comm outstandinggs ooff 22-3 months, even after rigorous follow-ups. THE E SAVIOUR When he found himself stretching reetchin hing his means with every payment cycle, Sanjive decided to take ta e a loan. Deciding and actually getting the loan lo were two diffe fereent realities, however. Try as he might, different getting a loan wa as a hu hhuge pain. He had no collateral to speak of, was h IITT De el degree wouldn’t budge loan officers. Several andd even his Delhi es and a d bank ba officers later, Sanjive came to Bank of India. The hassles ger er then the told him that the government had a scheme for micro manager an sm mall enterprises like his that guaranteed his loan coverage— andd small wh hichh meant that he could take the loan collateral free! For which S San Sanjive, this scheme from the Credit Guarantee Trust for Micro and S Small Enterprises (CGTMSE) was nothing less than a God-send. A Twenty Lakh collateral-free loan completely turned around his business. Working capital came in and salaries were also paid faster (so his employees were happier and therefore more prone to stay on). He could also import more equipment and in advance, and so not worry about the delays at customs. Says Sanjive, “If it weren’t for the loan, the recession would have been a killer for us. The already stretched payment cycles were being stretched even further. Payments haven’t been coming earlier than 3-4 months. If this loan hadn’t come at the right time, things would have been very tough for us right now. And without a collateral, I had lost all hopes of a loan. But thanks to this scheme, I am a very relieved man today.”

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An Incubator in every Campus ARTICLE

used to extract cane.”, the extract from

added advantage in terms of creating

This is a noble idea and has been

the above article is not correct. The

brand awareness.

around for a while now. But when I

northeastern part of India houses 21

The future can bring with it a del-

read government numbers hovering

species of Rattan of the 4 genus. Refer

uge of competition in the retail sphere

around 1 crore for 50-100 incubators,

white paper titled “Rattan species rich-

where there will always be a fear of

in today’s world, I am forced to judge

ness and population genetic structure

modern retail outlet owners creating

the seriousness of such initiatives. It is

of Calamus flagellum in North-Eastern

their own brands. Private label is to-

one thing to give a grant to a profes-

Himalaya, India”. By definition “Cane”

day satisfying shoppers’ contradictory

sor for a research project and quite

is the stem of Rattan plant and hence

demands for premium goods offering

another in the context of serious en-

there is no question of it being extract-

good value. The need of understand-

trepreneurship in the real world. What

ed from Bamboo. Thin Strips of Green

ing, quality, pricing and positioning

could a graduating engineer contem-

Bamboo is used to make wickers, bas-

plays a very important role before the

plate creating with something like 10

kets , and mats but they don’t tend to

introduction of a brand. Lastly, feed-

lacs which includes his livelihood as

be as flexible as cane.

back and promotional activities plays D Tikhak

well. Let’s get real guys!

a very important role for the success of Private labels.

hsenib@gmail.com

Vinod C Dixit

Doing business in the Arab world ARTICLE TePP steps up India’s innovation ARTICLE

I totally agree that Bahrain (and other

Reviews of proposals, as well as mid-

countries across the region) are becom-

In the downturn: How about working

term evaluations, should be done by

ing a better place to start a business

for SMEs? BLOGS

double-blind peer review. The use of

compared to the situation in the past.

The one thing that I have discov-

committees does not ensure neutral-

But still believe that the entre-

ered in the last 5 years of consult-

ity in the evaluation process. While

preneur eco-system is still missing

ing with SME clients is that the type

failure is not a sin, we need processes

very important elements like early-

of animal that wants to work in

that will maximize success. Finally,

stage risk capital and proper busi-

an SME is quite a different breed.

does TePP have a plan for a failed idea?

ness education.

Usually this animal is a doer (not a

Not all failures are due to a bad idea,

Mohd Khawaja

oftentimes it is due to poor imple-

talker), takes a long term view of most things, has strong self-belief and does

mentation. Perhaps TePP should re-

The growth of Private Labels ARTICLE

not want the brand-labels that one ac-

tain the right to take the idea beyond

It has rightly been pointed out that

quires when working with large corpo-

the initial entrepreneur, assuming the

“private labels are slowly gaining

rate. Up-turns or Down-turns are not

idea does not get to the second stage

prominence at big retail stores”. One

the reason why they work in an SME. If

of TePP funding.

would find that India has been rat-

for anything they chose SME, is based

ed 5th for most attractive emerging

on the fit between their inner self and

retail market. Private Labels today

the work profile that SME offer.

Anil Prabhakar

Cane furniture: A plush future ARTICLE

are increasingly considered credible

“India does not produce rattan, which

options in the same manner as ‘Fa-

is normally imported, but the north-

mous Brands’. For retailer-owned

Basics of Registering a Company ARTICLE

east produces a number of plants that

private labels, their own retail stores

This is one of the article that provides

yield natural canes. Bamboo is also

act as billboards that give them an

complex information in such lucid

SEPTEMBER 2009

Sundarraj Mahadevan

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language. It is a step by step guide

More than just a pretty face ARTICLE

In spite of being a company which is

and also impresses upon what are the

I havent actually seen an example of

running for the past 10 years without

activities that can be done parallely

a ground breaking product from In-

any funding, we are not "eligible". We

and what are the dependent activi-

dia. We've seen some great examples

were advised to consider a loan under

ties. This simplifies the task drastically.

in fashion, architecture interiors and

the collateral scheme with a collateral

I am sure your efforts will help lots of

so on, but not in products. An aver-

of 1.67 times the loan amount.

individuals and companies.

age chinese manufacturer who de-

Madan Kore

signs with 'no design' comes up with

This is how we pay lip service to the SME sector. Ananth Padmanabhan

some better stuff than what we see Coconut Farming In India BLOGS

in India. Vikram

People in Mangalore are forced to donate coconuts for free. They don’t even

DARE and Entrepreneurial Skills MAG I am fond of reading DARE and since

get a low, wholesale price of even Rs 3-

Collateral free loans for your

then, it has transmitted my mind. Now

Rs 4 per coconut there, while in Mum-

business? BLOGS

in real sense, I need to develop my en-

bai, it never sells for less than Rs 10.

Well, we did approach for a loan through

trepreneur skill with additional knowl-

This is a serious problem that requires

a prominent bank but were told that

edge which I believe that I will get with

immediate action.

our balance sheet had some figures

the help of DARE.

Manali

which did not "fit" into their scheme.

Vishal Mehta

Website:

www.dare.co.in

w w / :/ Email:

il B

p t t h

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opportunity/defense

Business opportunities from defense import offsets /Aman Malik 14

SEPTEMBER 2009

DARE.CO.IN

opportunity/defense

efense purchases from abroad attract what is called the offset clause. Basically, the seller in deals where the total cost of acquisition exceeds Rs. 300 Crore has to invest back or purchase from the country 30-50% of the value of the deal. But it is not as simple as that. Offset is applicable only to the foreign component of the deal. Also, the procedure for selection of Indian entities through whom the offsets are routed is not trivial. With several big-ticket defense procurement deals such as the one to procure 126 fighter aircraft for the Indian Air Force on the anvil, the issue of offsets has attracted attention, but not enough from smaller Indian businesses, particularly on how they can participate in and benefit from the offset requirements. This article attempts to do just that. We also analyze in detail the implications of the offset clause on the 126 fighter aircraft deal.

What are defense offsets? Defense offsets are counter trade obligations imposed by an importing country upon the Original Equipment Manufacturer (OEM) that mandate the transfer of critical technologies and production of components (that may or may not be related to the said deal per se), as part of big defense procurement contracts. In fact, India is not the only country to have an offset clause. Some countries that have an offset clause on defense purchases do not even insist that investments in offsets be limited to defense, in a bid to develop generic technologies even in civilian businesses. India, though, obligates that offset related investments be strictly limited to defense.

How does the seller meet the offset obligation ? Offset obligations maybe discharged in any one of four ways. By a direct purchase of, or executing export orders for, defense products and components manufactured by, or services provided by Indian defense industries SEPTEMBER 2009 15

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Why are offsets important to an arms importer like India? How will offsets in general influence Indian defense industry which is still in its nascent stage? The Indian defense industry is nascent and lacks the domain expertise or the scale to become a viable domestic supplier for the countryâ&#x20AC;&#x2122;s growing needs for cutting edge technologies required to keep the strategic balance of power in the region. The raisonâ&#x20AC;&#x2122;detre for offsets therefore is to stimulate growth in the Indian defense establishment, be it in R&D or production, both in the public and the private sectors. It is hoped that the business generated from the offset obligations will help government and private defense equipment manufacturers attain critical mass and this will eventually lead to domestic capabilities that may be harnessed for import substitution. Further, it could also help India tap the lucrative global defense market, thus far out of bounds barring some back-end operations that are now outsourced to Indian IT players. Business generation will also help the country develop a competitive defense export market, just as ISRO has managed to do in space exploration.

What has been the policy of the government of India with regard to offsets? What is the likely scale of offset business generation from the purchases on the anvil? Till 2006, India did not have a clear-cut offset policy. Although offsets have been in existence since the 1960s. It was the Kelkar report on defense procurement in 2005, that prompted the defense ministry to devise a clear-cut offset policy for the first time. The Defense Procurement Policy (DPP) 2006 was revised in 2008 and is again due for a revision by 16

SEPTEMBER 2009

the third or the fourth quarter of 2010. The government seeks to leverage the fact that the country is set for some big ticket defense purchases in the next 1012 years, amounting to well over US$30 billion, to help local Indian manufacturers develop newer technologies and scale. This procurement will generate an expected offset obligation to the tune of US$10 billion out of the projects that are on the anvil thus far.

cost of acquisition is over Rs. 300 crore, at 30%. This obligation may be raised to 50% in specific cases like in the case of the Medium Multi-Role Combat Aircraft (MMRCA) deal where 126 fighter aircraft are being purchased for the Indian Air Force and also the purchase of 197 Light Utility Helicopters (LUH). There is no offset applicable on orders below the stipulated ticket size of Rs. 300 crore and in exceptional cases, the government reserves the right to reduce or waive off the offset obligation. DPP 2008 also allows for offset credits that can be accumulated by foreign players for discharging their future offset obligations. This can be done in two

What are the main provisions of the Defense Procurement Policy 2008 with regard to offsets? DPP 2008 pegs the minimum offset obligation for import orders whose total

Courtesy: Sikorsky Aircraft Corporation (www.sikorsky.com)

By direct foreign investment in Indian defense industries By direct foreign investment in Indian organizations engaged in research in defense R & D or By creation of offset programs by foreign vendors in anticipation of future obligations. (For details, see box: Meeting Offset Obligations)

opportunity/defense

Big ticket Purchases No of units likely to be procured AIRCRAFT Medium Multi-Role Combat Aircraft Maritime Multimission Aircraft C130J Long Range Maritime Reconnaissance and Anti-Submarine Warfare Medium Range Maritime Reconnaissance and Anti-Submarine Warfare HELICOPTERS Light Utility Helicopter Attack VVIP Seahawk Anti-Submarine Warfare WARSHIPS/SUBMARINES Scorpene Submarines Frigates

Total expected Total expected cost of acquisition offset generation (US$ billion) (US$ billion)

126 13 6

10.8 0.9 1.19

4 0.3 0.4

0.6

1.5

0.45

197 22 6 80 16

2.3 0.7 0.4 1.5 0.66

1.15 0.23 0.13 0.5 0.22

6 3

3.4 1.7

1.1 0.57

DARE.CO.IN

opportunity/defense The 126 aircraft MMRCA deal

Six foreign OEMs are in the fray for the US$10.8 billion Medium Multi-Role Combat Aircraft (MMRCA) deal under which the Indian Air Force (IAF) will get 126 state-of-the-art fighter jets to make up for its aging fleet, most of which has lived out its time and is due for a phase-out. The first eighteen out of the proposed 126 aircraft would be procured under the 'Buy' mode and would be fully operational on delivery. The remaining 108 would be brought in with successive degrees of indigenization, that is, technology would be successively transferred during the course of the acquisition which is likely to begin in 2014 and carry on till 2024 (see table). 126 AIRCRAFT MMRCA DEAL 26 aircraft MMRCA deal Cost of System at US$60 million per aircraft (excluding cost of engine):

US$ 6.1 billion

Cost of Support, Spares etc:

US$ 4.1 billion

Therefore, total Cost of Acquisition (excluding cost of engines)

US$ 10.2 billion

Cost per engine (purchased separately from different vendor)

US$ 4-5 million per unit.

Assuming the IAF settles for single engine aircraft, then, cost of 126 engines

US$ 600 million

Therefore the total cost of acquisition (assuming single-engine aircraft are procured)

US$ 10.8 billion

LIKELY SCHEDULE OF ACQUISITION OF THE AIRCRAFT Year 2014-2017 2018-2019 2020 2021 2022 2023 2024

No of aircraft

% of Foreign Component

Total Cost if Acquisition of Foreign Component (US$ million)

18 18 18 18 18 18 18

100 80 60 40 10 10 10

1080 864 648 432 108 108 108

Total Teerefore amount on which offset is applicable Offset amount at 50 %

3.4 billions 8.1 billions 4.billions

Six major players viz. EADS, MiG, Lockheed Martin, SAAB, Boeing and Dassault are in the fray While MiG, Lockheed Martin and SAAB have pitched in for single engine aircraft, the others hope to supply twin-engine variants. If the IAF chooses to go in for the single-engine variant, the government would have to shell out US$ 10.8 billion, out of which US$ 8 billion would go towards the foreign component, generating an offset business to the tune of US$ 4 billion. Sources however indicate that the IAF is in favor of the twin-engine version out of stable of any one vendor and that some smart negotiating could limit the deal to about US$ 8-10 billion. Informed sources also indicate that strategic reasons might eventually force the IAF to go in for a combination of single and twin-engine aircraft, in a way that the cost of acquisition remains nearly the same. Most OEMs already have existing relationships with some Indian players, almost all of whom are understood to be lobbying hard for a share of the pie. THE BIG TICKET COMPANY-COMPANY RELATIONSHIPS: EADS (twin-engine aircraft): Samtel Display Systems (SDS), HAL, L&T, Infotech Enterprises,Tata (EADS is known to have signed MoUs with nearly 50 Indian companies) MiG (single-engine aircraft): HAL Boeing (twin-engine aircraft): HCL Tata, L&T, Infotech Enterprises, Satyam, Bharat Forge (Boeing is known to have signed MoUs with at least 37 Indian companies) Lockheed Martin (single-engine aircraft): TCS, Wipro SAAB (single-engine aircraft): Tech Mahindra (for the Army's BMS program) Dassault (twin-engine aircraft): Infotech Enterprises SEPTEMBER 2009 17

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opportunity/defense

willing to pay for current investments to build future capacity and expertise by Indian companies.

Meeting offset obligations Offset obligations shall be discharged directly by any combination of the following methods (a) Direct purchase of, or executing export orders for defense products and components manufactured by, or services provided by Indian defense industries. For the purpose of defense offset, “services” will mean maintenance, overhaul, upgradation, life extension, engineering, design, testing of defense products, defense related software or quality assurance services. (b) Direct foreign investment in Indian defense industries for industrial infrastructure for services, co-development, joint ventures and co-production of defense products and components. (c) Direct foreign investment in Indian organizations engaged in defense related research and development (d) Foreign vendors could consider creation of offset programs in anticipation of future obligations. Offset credits so acquired can be banked and discharged against future contracts. Banked offset credits would not be transferable except between the main contractor and his sub-contractors within the same acquisition program. The main contractor would be required to submit a list of such sub-contractors at the time of signing the contract. ways: via previous investments in the Indian defense industry, and by generating excess credits from offset projects that may currently be on. The validity of such credits is at present two years, with a possible extension of six months from the date of signing of a contract.

Will the price of defense equipment go higher because of the offsets? Offset obligations some at a cost to the OEM. This cost is factored into the cost of acquisition of the equipment. OEMs almost never reveal the actual cost of 18

SEPTEMBER 2009

development of equipment, technology upgradation or for that matter R&D costs. Therefore, it becomes difficult to accurately calculate the scale of escalation; it is nevertheless estimated by those knowledgeable about these deals that the incremental escalation can vary from anywhere between 3-4% as in the case of most naval equipment to 7-10% for the MMRCA deal; it can even go up to 12-15% for some highly specialized equipment. One way of looking at this escalation is as the price the government is

How can a player,.otherwise not associated with the defense sector, hope to secure a piece of the defense offset business? How are player-toplayer relationships formed in the defense business? There are over 11,000 Indian companies, big and small, who have been associated with defense production at some stage or the other. Yet, out of this, there are only about 50 odd companies that carry out licensed production of equipment, software or services that are outsourced to them. To that extent, at least for big ticket deals, it is a closed club. It does not however mean that new players including those who have never previously been associated with defense, cannot enter. If such a player can demonstrate its technical skill and scale to the OEM it wants to do business with, the two might work a partnership out and respond to the ‘request for proposal’ issued by the Ministry of Defense, thus cementing a player-toplayer relationship. Existing player-toplayer relationships will naturally have an advantage. Additionally, a company could register itself with the Defense Offset Facilitation Agency (DOFA), which is the single window agency to implement the offset policy. Yet, this is just a procedural exercise and at the end of the day, good old lobbying and contacts, synonymous with the defense business, always come in handy.

Will defense offsets really lead to technology upgradation in the Indian defense industry? This is a question on which the jury is still out. For the Indian defense industry to really come on its own, it will have to develop critical mass as well as its own cutting edge technologies. Offsets can generate just about enough business to kick-start this process, but beyond this the industry’s own ingenuity and spirit will take it to a point where it comes at par with the best in DAR E the world.

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/blog

Brand ridicule Properly handled brand ridicule could prove to be an effective way of delivering the desired message to target audience

M /Rupin Jayal

Ridicule is radioactive. Handled well, it can provide almost ceaseless energy for a brand, often creating a very solid base for its continued success. Mishandled, it can be catastrophic.

SEPTEMBER 2009

aking a potential customer look really dumb is not a great way to get him to choose your brand, right? Customers should be praised to the skies for their sagacity in choosing your brand; they should be made to feel special and super-bright according to conventional wisdom. Maybe not. Let’s go back to our school days. The most popular boy/girl wasn’t the “sweetest” and most caring. But they would have a crackling sense of humour and be really outstandingly good at something. The sweet guys would be liked, people would use them as examples of being a “good person”, and teachers would usually hold them up as exemplars. But other than that questionable moment of fame, they would wander along the periphery of school-life forever condemned to be spectators of the shenanigans of those at the epicenter. And once out of school, this pattern would probably be repeated in college, at the post-graduate school and then at work. For some reason, a person who can laugh at himself, gets other people to laugh at themselves; who can make fun of someone without causing lasting psychological damage, becomes the center of parties and office gatherings. Caricaturing people’s foibles using mimicry seems to encourage people to ask the maestro to impersonate themselves and their peers. Brands have also done this with a fair amount of success. Sprite takes a pot shot at an entire bottled soft drinks category as well as the foibles of people in different situations, going so far as to characterise the “attitude” and “cool” advertising of the category

as “bakwaas”. It could have alienated the core target audience of the cola majors that have ruled the category mostly using personality and charisma-based advertising. However, ridiculing it with a light touch has clearly (pun intended!) made an impact. So much so that it has stolen a march over the other clear lemon competitor and is now amongst the top three brands in terms of sales. Ridicule is a great way of clearing away the cobwebs of traditions, attitudes and behavior that hobble aspirations and freedom. For a “young” country, both in terms of demographics and young as a relatively open economy, this is a very useful tool. Rather than attack outmoded ideas and dogma using rational argument while getting entangled in endless debate, it is much easier to just demolish it with a smart jab of ridicule. Brands that want to disrupt the outmoded conventions of categories, many of which most people do not understand or consider irrelevant, would find a very useful weapon in ridicule. It becomes hard to counterattack. And many times a reaction makes the reacting brand look leaden-footed, out of date or worse—irascible. What it can also cause is rapid change and acquisition of customers. Swatch poured ridicule over the Swiss watch industry by presenting a plastic, mass produced watch to counteract the traditional, hand-crafted, precious metal-centric paradigm of the industry. By doing so, it expanded the meaning of “Swiss made” and by picking up causes important to the people it was seeking to attract; it gave itself an iconic meaning. It transformed the industry, created a giant iconic

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/blog brand and even inspired a car along the way. When Virgin ridiculed the stuffy tradition-driven world of air travel, it was able to bring in a refreshing new experience. Pepsi India’s iconic moment of ridicule with “Nothing official about it” has never been forgotten and has propelled the brand to be a youth soulmate. But this is where ridicule can decay into a joker from a jester. The latter holds up something meaningful but outmoded to the harsh glare of ridicule and thus destroys it. The former merely tries to be funny without being edgy. The danger is that the brand thus becomes a slapstick shadow of what used to reflect the fault line between a conservative, inhibited generation that hitherto predominated and the more liberal one that was beginning to burst forth. Of course, not all categories can handle ridicule. Those dealing with saving lives or the more intimate facets of our life would probably be ill-served by the use of ridicule. Also, using subjects that deeply impact the national psyche in a positive way or a negative way would probably generate an understandable backlash. So sensitivity has to be paramount. At the same time, picking up trivial subjects or being cocky would elicit some momentary laughter but no real long term impact. Also, ridicule does not have to be through communication alone. In fact, tangible action forms a strong backbone for effective ridicule. Swatch, by being a plastic watch, was ridicule in action. Similarly, the Mac’s simplicity effectively ridicules the perceived complexity of its closest competitor. With this backbone, its faithful followers can create communication like this http://www.youtube.com/ watch?v=EUXnJraKM3k. It strikes a chord not just with the Mac faithful but also harried users of the “other” brand. Similarly, the Virgin in-flight massage or in-flight movies effectively ridicule the more sombre and conservative approach of legacy carriers.

Amul has for a long time used satirical ridicule to create a distinctive image for itself. Using rather “utterly butterly” cartoon characters, it has often touched upon supposedly untouchable subjects. This is a classic case of ridicule based on topicality and coated with a piquant sense of humour so that it becomes something to look forward to rather than run away from. Sometimes brands inadvertently use ridicule and this needs to be evaluated very carefully. There was a popular brand of motorcycles that had, in its TV commercial, its protagonist buzzing about the bike like a supercharged bumblebee extolling its virtues. The characterisation was so ridiculous that it probably caused quite a few prospects to stop short and wonder whether this was the right brand for them. However, since this was an aberration and the brand had already created a solid reputation for itself, the TV commercial did not do too much damage. Had it been in an FMCG category, the impact might well have been quite different and more adverse. Using our cultural foibles and habits is also a good place to develop the art of brand ridicule. This had been done exceedingly well by a brand of salty snack food by first aiming gentle ridicule on popular TV serials and movies and then creating a wacky modern Indian family that exaggerated our family idiosyncrasies. Unfortunately, that brand also seems to be lapsing into pure slapstick today and is therefore in danger of losing that piquant edge of differentiation that it enjoyed over other salty snack brands that rely purely on slapstick, over-thetop humour. Ridicule is radioactive. Handled well, it can provide almost ceaseless energy for a brand, often creating a very solid base for its continued success. Mishandled, it can be catastrophic. The worst case is when it is inadvertent, which results from a lack of understanding between its creators and their audience. Ridicule can be very culture-specific and what is con-

sidered acceptable in some cultures could be considered obnoxious in others. Though the influence of mass media is reducing, to a certain extent, the differences and cultural sensitivity have to be finely tuned when treading down the path of brand ridicule. Brand ridicule may work most effectively for brands that see themselves as perennial challengers rather than those that see themselves as rulers or leader brands. It is also very useful when trying to shake people out of their comfort zone, especially when it comes to social initiatives. The most recent example being the “Jaago re” commercials that were encouraging people to vote. In fact, pious preaching to a young country is almost guaranteed to increase their disregard. Ridicule, deftly delivered, is far more likely to stimulate a constructive response. So if you want to consider the use of ridicule to deliver your brand message, here are some guidelines that would be worth following to prevent ridicule from becoming dangerously radioactive: 1. The brand needs to think like a jester of old or cartoonists of today. Communicating something meaningful and possibly bitter, but encased in a piquant coating of humour to be not just palatable but actually attractive. 2. Ridicule needs to be intelligent— capturing a folly of the day, a fad, a superstition, a habit or tendency or some behaviour that people accept as wrong but continue with anyway. 3. It must diminish the behaviour, attitude, activity, etc., but not the person. 4. Walking into the minefield of socio-cultural ridicule that seeks to carve stereotypes out of different communities and people could lead to brand suicide—avoidable. 5. Topicality—finger on the pulse of what is pulsating provides the richest vein of ridicule—worDAR E thy material. The author is Director-Strategic Planning at M&C Saatchi.

SEPTEMBER 2009 21

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opportunity/services

Online mobile recharge With the user base for telecom and DTH subscribers growing leaps and bounds, a number of third party recharge players are trying to tap into the market. What is the business all about? /Aswathi Muralidharan

magine you reach home late at night after a long day at work. Suddenly you realize that you have to make an urgent call and you have run out of cash balance. What do you do? Cut to another situation. Your monthly DTH recharge has exhausted and you do not want to make the effort of going all the way to a recharge shop to topup your account. What do you do? Well, there is a simple solution to both these problems: simply log on to a third party recharge website and recharge your mobile or DTH account within minutes. And that too at the convenience of your home! Could this be a potential business opportunity for many? In this article, DARE focuses on the nitty-gritty of entering doing such a business.

million connections. What is even more interesting is that a majority of the wireless connections, almost 90% of them are prepaid. Given an ARPU of around Rs 200, we can assume that an average recharge is Rs 200 per month, or Rs 2400 per year. Based on these numbers, the recharge industry size works out to be approximately Rs 9600 crore per year. Talking of DTH, though the number of players in this sector are few, they are also reportedly expanding at 35-40%. India’s TV viewership is believed to be the second highest in the world and is expected to swell up to 35-40 million by 2012. The installed base of DTH is very small compared to this number. So, this

How big is the market?

The Industry Landscape

The telecom industry in India is growing at breakneck speed, and the majority of the growth is contributed by the wireless or mobile segment. In July 2009, TRAI estimated India’s teledensity to be 41.08 with the total telephone subscriber base reported to be 479.04 million. Of this, while the wireline base was just 37.41 million, wireless subscription (including GSM, CDMA and FWP) accounted for 441.66

Mobile connections in India Prepaid connections (90%) Average recharge per month per person Average recharge annually per person Total Recharge Industry

SEPTEMBER 2009

441.66 million 397.49 million Rs. 200 Rs. 2400 ~ Rs. 9600 crore

space also remains mostly untapped and could offer a big opportunity to third party recharge players.

Business models The recharge market in India is vast and is on the lookout for new channels to expand. Currently, the market can be broadly split into two – offline and online. The offline sector is dominated by scratch cards that are distributed by telecom players and sold through retail outlets ranging from cellphone sales and repair shops to the more generic pan shops. On the other hand, the online recharge business is serviced by several channels – the service providers through their own websites and recharge through ATMs have been the traditional methods here. Third party recharge players such as Rechargeitnow.com, Fastrecharge.com and Onestoprecharge.com are the new entrants in the fray. Currently, the market is dominated by recharge cards than by e-recharges. The scratch card segment works through a PIN recharge model, wherein a telecom service provider sells a 16 digit PIN to the user through the scratch cards. For this, a number of background processes take place at

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opportunity/services the service provider's end including the generation and scrambling of the 16 digit PIN, printing it and then the customer (or more usually the retailer) SMSes the code to the service provider to recharge the customers account. Typically, each service provider has multiple recharge plans (usually 5 or more) running at any time and each telcom circle has about 5 players. So, a retailer has to stock 25-30 different varieties of scratch cards. In practice, the retailer stocks only the more popular plans and sometimes is even selective about the service provider. So, a given retailer may actually stock under 10 different recharge options. The margins in the recharge business is wafer thin, with the retailer earning between 3-3.5% margins and the distributor earning 1%. There is no concept of wholesaler in this business. For most retailers, recharge cards are top-up income or at best help draw customers who may also buy something else from him. More money is to be made from activation (selling a new prepaid SIM card to a customer and activating his number) than from selling a recharge coupon. The online recharge model does away with the retailer—if the third party recharge player is large enough to deal directly with the telecom service provider or acts as the retailer, buying inventory from a distributor.

Today, in one family there are several mobile connections, and often a younger member of the family goes out to get the recharges done. We ease this process by providing a single platform having recharge options of all telecom players and at the convenience of their homes – SHARAT JAIN President & Co-Founder, Online Recharge Services

How does a third Party Recharge model work? Of late, several vendors have entered this space and have started providing recharge options to customers. There are several reasons behind this. From the point of view of consumers, this option offers convenience. Accord-

ing to Sharat Jain, President and CoFounder of Online Recharge Services, the promoter of Rechargeitnow.com, “Today, in one family itself there are several mobile connections of different telecom service providers. Often the younger member of the family goes out to get the recharges done. We ease this process by providing all the recharge options of all telecom players on a single platform and at the convenience of their homes. Moreover, the expertise of the telecom service provider is to provide service rather than selling recharge coupons. So this feature is even difficult to find on most service providers’ websites”. Since the user interface of these players is a website, the target audience is mostly urban population. Defining the target audience base further, only those with easy internet access as well as those who feel comfortable purchasing online are currently customers to this service. According to a study conducted by the Internet and Mobile Association of India (IAMAI) and IMRB International, India had an estimated 45.3 million ‘active’ Internet users as on September 2008, of whom 42 million were from the urban areas. This could as well be the potential customer base for an online third party recharge player. There are some moves by the online players to dramatically increase their target base. More about that later. Recharges can be done in two ways, either by getting a sixteen digit PIN of the service provider or through flexi-recharge. These websites also tie up with several payment gateways, net banking services for money transactions. Says Sharat Jain, “For telecom players, revenues through online recharge is a very small part of their total revenue. Therefore, often it becomes difficult for consumers to understand how their website works, what are the latest schemes and finally how to get the recharge done. Therefore, we created a simple website with the recharge options upfront for user convenience.” However, for a third party vendor this could prove to be a difficult task. There are 28 telecom circles in India and an average of 5 players in each circle. Now SEPTEMBER 2009 23

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opportunity/services

assuming even five schemes are live at any given point of time, that means a e-recharge player has to not only provide 700 new recharge options, but also track changes to them constantly. In reality, according to Jain of rechargeitnow.com, they have people in the team who constantly interact with all telecom service providers at the circle level to track changes to the plans. Even then, they update plans on their website on a weekly basis only. Anybody who wants to recharge online can simply log on to these websites, create a one-time login ID, get their mobile number verified and recharge their accounts within minutes. Explains Ahamed Ansari of Fastrecharge. com, “When a customer requests for a recharge, our system purchases the recharge voucher from the service provider and sends the voucher to the customer through SMS or direct top-up of customer mobile.” Rechargeitnow follows a similar model. They maintain an account with each of the service providers at the circle level. When a customer pays for a recharge at their site, they pay for it from their account with the appropriate service provider-circle and recharge the customers mobile number. The account with the service provider is reconciled on a daily basis.

What is the revenue model? So how do these players make money? These players either deal with the telecom players directly or through aggregators. Similar is the case with DTH services. Whenever a customer comes to the site for a recharge, the telecom service provider pays up to an average of 4% of the recharge amount to the third party vendors. The recharge vendor has to pay about 3% to the payment gateway provider. That typically leaves the recharge player with a 1 % margin, from which all

DTH Players • Tata Sky

• Dish TV

• Sun Direct TV

• Reliance Big TV

• Airtel Digital TV 24

SEPTEMBER 2009

The Indian Telecommunication Industry Month (2009)

Wireline

Wireless

Tele-density

July

37.41 Million

441.66 Million

41.08

June

37.54 Million

427.28 Million

39.86

May

37.66 Million

415.25 Million

38.88

April

37.81 Million

403.66 Million

37.94

March

37.96 Million

391.76 Million

36.98

SOURCE: Compiled from TRAI Website

their costs including technology costs have to be met. And that makes this a volume game. Of course, these percentages are negotiable, given volumes and relationships with payment gateways and service providers. Some players have incorporated other revenue channels for increasing their margins. One way is to charge a transaction or convenience fee like IRCTC does. For example, Fastrecharge. com and Onestoprecharge.com charges an Internet service charge of 11% and 4% respectively to its customers. Another revenue source (albeit a minor one) could be Internet advertising.

Some Challenges There are several challenges that this segment of the industry faces. One, establishing a relation with the telecom players is a hard nut to crack. This is because these players already have a fairly good distribution network for scratch cards. Two, since this sector is dependent on technology, it needs constant upgradation. Security of online transactions is another critical factor. Managing dealings with payment gateways require constant monitoring and reconciliation. Automated systems that can do this become the norm for large volumes. You also need an efficient redressal system to deal with customers who pays for a recharge but whose recharge does not happen. Rechargeitnow, for example says that they try to keep this down by doing an automatic credit back if a recharge is not successful at the service provider end – that is, if their systems do not get an acknowledgment from the service providers’ systems of a successful recharge. Like we briefly discussed earlier, another way could be to increase the

target audience by introducing new channels or aggressively adopting existing channels to your business. One of the limitations for the online recharge business has been the limiting of their target audience to the urban population with easy Internet access. On the other hand, large volumes of recharge users become part of your target if you include rural and those with no internet access. The route to this of course is the huge mass of retailers who deal with paper based recharge coupons. One way of doing it is similar to what IRCTC has done - enable existing resellers (agents in the case of IRCTC) to use your platform and add that to your business. For e-recharge, the online recharge player has to first create an ewallet for the retailer who then recharges against the balance available in his wallet. An e-wallet is a virtual wallet, i.e. a retailer has to credit his e-wallet account in advance and recharges done gets debited against that, much like a debit card. For the retailer, now, recargeitnow is working on a mobile application that can run on any Java enabled cell phone and can be used to recharge for all service providers from the same cell phone.

Conclusion It is early days still for the business of online recharge. The number of players is still small. The potential market size is huge, but the margins are wafer thin. The winners will be not just the ones who achieve scale and efficiencies of operation which are given, but the ones who are able to break through the clutter and add new income sources or payment options like micro payments DAR E to their existing platforms.

event/apin

DARE.CO.IN

Platform for business incubation T

he 4th Asia Pacific Conference on Business Incubation on the theme â&#x20AC;&#x153;Global Recession : An Opportunity for Business Incubation?â&#x20AC;? was organized by The Asia Pacific Incubation Network (APIN) on August 6-7, 2009 at Coimbatore, India Huge investments from the government is not the solution for small and medium businesses. Instead, preferential government purchase would prove better. This implies that the government might consider increasing purchases from the SMEs, the participants felt. There were a host of success stories in entrepreneurship that have come out of incubators that provide the necessary ecosystem for startups to sustain. As for the ideal business plan that would increase the chances of getting the necessary fund, the simpler ones sail through. This is because investors are flooded with such plans and do not have the time to got through complex documents. According to an estimate only 15% of the research proposals are able to get funding, which means that many of the proposals fall aside, indicating a tough competition that prevails when it comes to attracting funds. The Asia Pacific Incubation Network (APIN) was established with energy and commitment from leading incubator managers in the region and with support from the World Bankâ&#x20AC;&#x2122;s infoDev Program and the Department of Science and Technology in India. Its purpose is to help promote, support and develop quality business incubation in the region, developing management and policy capacities, sharing experiences and complementing the work of the Asian Association of Business Incubators (AABI), with whom a formal Memorandum of Understanding has been signed. The network is owned and driven by incubator managers, giving incubation professionals their own vehicle to learn from each other, undertake practical activities and to advocate for policy and other improvements. DAR E

SEPTEMBER 2009 25

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strategy/marketing

How to do market research without spending a fortune /Krishna Kumar

his post is prompted by the question “How does one gauge factual potential of an idea without paying big bucks to a market research firm?” raised on Twitter by @ stallionCEO to @start24x7. Companies and brands need to continuously understand the market, customer needs, get feedback to their products, etc. The standard way of doing this is to do market research. Unfortunately, market research usually costs a pretty penny, and many,

This first appeared as a blog post. The comment is by Mrutyunjay Mishra of JuxtConsult, an online market research firm. 26

SEPTEMBER 2009

particularly startups being hard pressed, are unable to commission market surveys. Does the high cost of market research mean that startups and other not-sowell-off companies have to do without the luxury of market and customer insight and work as if blindfolded? No. Not at all. There are many market research techniques that are not costly. And then there are alternatives to the costly part of market research.

Do you really need fresh research? Are you sure that you need fresh research to find your answers? It is highly possible that someone else has researched the same question before

and the answers may even be public in places like Slideshare. A simple Google search could lead you to mines of information. Websites like those of the World Bank, Reserve Bank of India, OECD, UNDP, Energy Information Administration and so on are mines of data that you would otherwise pay a consultant for—and chances are that the consultant would go to the same sources anyway. With enough secondary data you may be able to do away completely with the intended market research or even cut down its scope, and hence the costs, dramatically. If you do decide to go ahead with the research, you need to break it down into its key cost elements. Let’s

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strategy/marketing also dramatically reduces sample size and costs. You can play with the numbers here and possibly settle for lower confidence intervals and higher margins of error to keep research costs down.

Can you collect responses online? Field agencies charge huge fees per interview (starting from Rs 50 per contact and up to Rs 500 or more, depending on the type and accessibility of the respondent. Can you do your survey online and reduce these costs? There are a number of hosted survey software like SurveyMonkey that you can use to run a survey online. Even if a small part of your survey is done online, there is that much reduction in costs.

Where to get online respondents from?

look at the key elements of cost in market research.

Data collection Depending on the research agency concerned and the sample size, this may in fact be the biggest of all costs in a market research. Most agencies outsource this work to specialized field agencies and just add a “management fee” on top of their bill.

Can you do with a smaller sample? The sample size required for a market research is determined by the total population, the confidence level and the confidence interval you require. As the population size increases, the sample size tends to stay constant and there is no point in having huge sample sizes unless you want to delve deep into the results. Confidence levels are usually 90 percent, 95 percent or 99 percent and confidence intervals are normally around + or - 5 percent. Reducing the confidence levels from 99 percent to 95 percent almost halves the sample size you need! Similarly increasing the margin of error

This is a fairly obvious question and the answers are also equally obvious, if you look around. A good starting point is your customer and contacts database. Pull out all the e-mail contacts and visiting cards you have accumulated. See how many of them qualify. Leverage your social networks, including Linkedin Groups, Ryze, Twitter and Facebook, to get respondents. Advertise with Google Adwords to draw prospective subjects to your survey. You can target your Adwords campaign at respondents with the required demographics. Offering a reward like a lucky dip prize is a sure way to increase your response levels dramatically.

Use college students If you still need to get the data from face-to-face contacts, a group of smart college students can get it done for you at a fraction of the cost that a field agency would charge. Here you need to ensure that they are not filling the response sheets sitting at the corner coffee shop!

survey? The Delphi method, pioneered by the Rand Corporation, is an accepted market research method. Simply put, the Delphi method is nothing but asking a group of experts for the answer and making them arrive at a consensus by presenting back to them the anonymous summary of the answers. You can automate the Delphi process here. You could get experts for a Delphi session from the same sources listed above, including your various social networks. By going the Delphi way, you could reduce your market research costs dramatically, if not eliminate them altogether.

Data analysis Once the sampling is done and the data has been verified, input and cleaned comes the analysis. Most MR agencies outsource this task also. Data analysis typically comes in two flavors. 99 percent of all data analysis is nothing but cross tabs in Excel (or OpenOffice for that matter). The remaining 1 percent is done in software like SPSS. Cross tabs are fairly simple to do if you have access to the source data (like from your online survey). For the SPSS work, you can approach the same people who do the work for the research agencies.

The report and the presentation Do you need a detailed report? Something that puts in words what the cross tabs say, and that too in color, printed at twenty rupees a page? Ask the agency to be kind to the environment and do away with all the paper and also reduce the costs in the bargain. Do you need some one from the research agency to fly down to your city at your expense to read it out to you? Can’t you do that over a phone call if not over chat or Skype? I know market researchers are not that technology savvy, but...

Do you need an agency? Do you need a sample at all? This is a good question to ask before you set out to do a sample based market research. Do you really need a sample

Finally, if you can do all this, do you really need that costly agency to do the market research for you? Can’t you do at least the basic stuff yourselves? SEPTEMBER 2009 27

DARE.CO.IN “Absolutely... save the penny! A market researcher’s perspective” Comment by Mrutyunjay, August 11, 2009 Disclaimer: Not speaking on behalf of all research agencies in India (I am no self claiming representative of the industry) but as someone who is a seasoned researcher and runs an “online market research agency”. These are completely honest personal views.

Do you really need research? I guess it is not about small or large company and ability to spend... it is little more fundamental than that... “it is about the real need to devote time & money”... “real need to hire a specialized agency/professional who costs”... “real need to know something you more or less already know”... “need to look for something you don’t really have with you from any of the existing internal source or other published public sources”... etc. etc. It is like, you have cold and 1. do you want to take the home remedy for the general cold or 2. you have to go to the chemist and buy some OTC or 3. you need to go the Doc next door for some consultation or 4. you actually need to get a thorough check up done before you want the medicine to be prescribed by some medicine specialist in a private hospital who charges a consultation fee Rs. 1000 per visit. You have many choices of shelling out money for a general cold. Unfortunately market research is not always general cold and the options available are not either or situations. “Every marketing problem is research opportunity and every marketing opportunity is a research problem”... you need to understand how can you address the “opportunity” and “problem” better “with or without a research agency”, “with or without spending the so called fortune”. I am aware of many companies who grew without any formal research agency hired for many years, only by taking decisions... 28

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strategy/marketing 1. purely based on intuition and gut feel 2. based on basic commonsense understanding of their consumers/ business 3. by utilizing all the existing sources of information

Use college students Go on your own peril;-) they are more nuisance than solution, experience will speak for itself. For simpler problems you can still rely, but be careful if the objective is critical.

Do you need a sample at all? Data collection Wrong assumption/information... bigger/smaller agencies don’t add very high field management fee on sample collection. On top of the out of pocket expenses for fieldwork they primarily charge a time cost for analysis & report writing, typically 30% to 40% of the total project cost. If you calculate it doesn’t give them more than 15 to 20% profitability, I am sure that is a fair margin business. Because of the outsourced field work model the cost hasn’t gone up, but quality has gone down. Be careful on quality assurance/compliance more than cost there. Can you do with a smaller sample? KK is bang on, if you don’t need deeper analysis cuts then 1500 to 2000 sample is almost the best sample for any size of universe above 20,000. Can you collect responses online? Sure you can, but the cost is not going to be drastically lesser than offline (face to face paper pencil), as online (self filling) is still growing and online agencies like us don’t have evolved targeting methods and scale in Indian domestic market to reduce the cost drastically. Don’t expect more than 20 to 25% lesser cost. Where to get online respondents from? 1. Buy regular online ad inventories (websites/ad networks) – huge logistical nightmare if sample size is small. 2. Do a SEM campaign to collect sample – need specialized knowledge of setting up a campaign and optimizing it. 3. Buy from an online sample panel – simplest but will cost you. 4. All free sources KK suggested – if sample is small and you are not worried about market representation and source biases.

Depends on objective. Delphi is not a solution to all kind of research needs you may have, it is an alternate method for certain kind of research problem.

Data analysis KK is right, basic tabulation can be done by anyone; you need to have simple softwares to do cross tabs. But it is not always simple, sometime the operational aspects are messy... if you have large number of fields, coding issues of numeric as well as alpha numeric fields and not good understanding of how to organize the raw data file for tabulation then a two hour of work (for a specialized guy) may take you 20 hrs of effort. Choice is yours, be careful about the opportunity cost.

The report and the presentation KK is right, I come across many clients who don’t read a soft copy of the presentation/report sent, not even the executive summary (I personally don’t believe in giving a printed report anyway) and ask to come over and make a presentation made out of the same report. I am sure many research companies like us don’t like doing presentations for every research; many just see an opportunity. If you really need the information, then do spend time on the report to ask questions, interpret & assimilate beyond what the research agency has indicated, as a business owner you are definitely better off than the agency & researcher to figure out what the data indicates.

Do you need an agency? Don’t put market research guys like us out of business, we don’t even cost for 2% to 5% of the marketing budget in India. I am sure, if you don’t have a marketing budget as on date and you are someone who can “do it yourself”, then now “you already know how to do research; KK’s DAR E article is very informative”.

DARE.CO.IN

event/tie

Business Plan Contest As 13 finalists out of 86 gear up to contest for the prize money, a group mentoring session helps them with mantra for success. On dealing with unpredictable situation:

f one team of entrepreneurs wants to provide the “highest quality of animation”, the other is working on an online platform for students to learn, test and collaborate. These young minds are part of the 13 probables that have made it to the final round of a contest organized by TiE Chandigarh in association with the Department of IT, Chandigarh Administration, Indian Angel Network (IAN), and STPI. At least three would win attractive prizes that include space at the Entrepreneur Development Center of the Rajiv Gandhi Chandigarh Technology Park, besides mentoring and access to angel investors. Krishna Kumar, Group Editor of DARE, did a mentoring session for the finalists at Chandigarh, the highlights of which are below.

• Each slide should not have more that 5 lines

The difference between a good and a bad idea is the execution. But there will always be variables that could affect your business. So, the plan will have to be tweaked depending on the variables. If a new variable comes in, add it to your business plan. So, keep doing the sensitivity analysis and stress test, in the parlance of IPO ratings. Many may not know as to what the shape of their business would be five years from now. The business could be significantly different from what it is today.

• The slide is only an aide, it is what you speak that matters

On scaling up:

QUICK TIPS ON ELEVATOR PITCH • Find out as much as you can about the jury • Talk in the language that is simple and clear

• Do not use too many colors on the slides • Talk passionately, as if you are pleading for your life • A pitch is not a monologue but a dialogue. Evoke questions from the jury

On Customers: Ultimately, your product or service has to provide benefits to the people and has to solve some problems. Therefore, try to bring the customer angle into the presentation. As to how the end customer would benefit, instead of getting too emotionally involved with your product or service while making the pitch.

On Competition: It is important to find out who your competitors are. If you mention big names as competition, then you have to figure out as to how you would take them on. Ask yourself: what is so great about your product that the world cannot live without it?

Every business faces its limits to growth. After a point, it requires the same fire in the belly that you used to start up to take your business to the next level. Each entrepreneur has to identify his own mechanism to take that leap. Whether you are motivated enough to take it higher is what will matter. At that level, you would have to look for logistical requirements and marketing requirements.

On closing down:

QUESTIONS TO ASK YOURSELF WHILE WORKING ON A BUSINESS PLAN • What is so great about your product or service that the world cannot live without it? • Who is your competition and how will you handle it? • How will you scale your business? • Why do you want the prize?

Several factors could adversely affect your business. It could be competition, law suits, losses, etc., but one has to prepared for any situation. Gopal Srinivasan of TVS had once said that he started nine businesses, of which four failed. One out of ten start-ups could fail. The problem is not about the failure of the business, it is when an entrepreneur thinks of the failure of his business as his own failure. The business and an entrepreneur DAR E are two different things. SEPTEMBER 2009 29

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event/headstart

Headstart: Travel Showcase H

eadstart Startup Saturday event held in four cities â&#x20AC;&#x201C; Delhi, Mumbai, Bangalore and Hyderabad â&#x20AC;&#x201D; in the month of August. August Startup Saturday (SS) in Mumbai focused on Travel and Leisure. The 17th edition of SS Mumbai saw established online travel portal Cleartrip along with two startups in the Travel and Leisure space showcasing their businesses. Noel Swain, VP commercial of Cleartrip talked about the online travel space in India and upcoming product enhancements. The other two startups showcasing were Cornucopia Weekend Planners and DLTA Travels. Cornucopia presented a unique weekly mailing list that helps to plan weekends. Activities that can be included range from adventure sports, theater plays to night clubs. DLTA Travels Founder & CEO, Aditya Darooka, revealed how he learned some of the innovative and totally unknown ways which form the USP of DLTA. While online travel players rely on the mass Internet audience, DLTA Travels manages better margins catering to corporate clients with its offline and personalized approach. The August edition of Startup Saturday in Bangalore showcased two efforts in the domain of clean tech. NextGen PMS and AutoBoxx

SEPTEMBER 2009

DARE.CO.IN

/event Automation were the ones that comprised the main demos. NextGen PMS are involved in the green chain and in estimating carbon waste footprints, providing energy and emission efficiency measures and implementation plan. Abhishek, co-founder of the startup, briefed on a number of topics. Ramandeep from Autoboxx Automation briefed about managing energy in offices and houses. InOutAds showcased their approach towards connecting the folks who have places to advertise with the advertisers. Alleway Info talked about grooming the students entering the job market, and how they are not a placement agency but a source of well qualified and more than normal freshers in to the industry. Daniel from Daniel Power Systems showcased his efforts at minimizing power thefts from the supply lines (not from homes) and at optimizing smart grids. In the Delhi event, Abhijit Bhattacharjee of Luna Ergonomics showcased the product â&#x20AC;&#x201C; Panini Keypad based on statistical predictive model that allows a user to type conveniently on mobile phones in different languages and can also do SMS compression. Shishir of Mechartes expressed his viewpoints regarding strategies for the startups and other businesses followed by substantive discussion on these strategies. Also, discussions regarding patents and Intellectual Property Rights took place at the event towards the end. Headstart Startup Saturday event was also held at Hyderabad in August DAR E which was informatory too.

SEPTEMBER 2009 33

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SEPTEMBER 2009

/bio

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/bio

SHEKHAR AGARWAL PRIYAGOLD (SURYA FOOD & AGRO)

hat is the genesis of your business?

We have been in the business of food products since the beginning. Before starting this company, my father, Shri Ballabh Prasad Agarwal, had a business of manufacturing coconut oil in Calcutta. When he moved to Delhi, there was no big market for coconut oil in the North. It is then that he decided to explore some new areas of opportunity and decided to roll out the biscuit manufacturing business. The objective has always been to provide exceptional quality products at a reasonable price for the average consumer. In 1993, Surya Food & Agro had a very modest start with a small unit at Greater Noida, which had a capacity of 25 tonnes per day. The initial investment of Rs 4 crore came in from the coconut oil business as well as bank loans. We got a very good response for our first product, under the brand Priyagold. Ever since, we have not looked back. As of now, our company has four plants, located at Greater Noida, Lucknow, Surat and Hyderabad â&#x20AC;&#x201C; with a capacity of producing 1,50,000 MT per annum. Our manufacturing capabilities, along with strong brand building and distribution capabilities have enabled us to command a sizable market share over the years.

entrepreneur of the month How did you deal with the competition from established players in the industry? We carved a niche by getting into the premium biscuits segment, instead of glucose biscuits. By doing this, over the years, we have grown to become the number one in northern and central India, and number two in the western region. This is of course talking only about the premium or non-glucose segment. However, about 70 percent of the total biscuit industry comprises of glucose biscuits. On a national scale, when one includes glucose biscuits too, we stand at number three. Having said that, of course, there is competition â&#x20AC;&#x201C; and competition is necessary for growth. We take our competition as a challenge that we have to overcome. With this approach, we have seen our company grow at a stable 20-25 percent year-on-year.

Why did you foray into the the fruit juice business? India is a growing market, when it comes to the fruit juice segment. Indians have begun to take health and wellness seriously. The consumption of fruit juices has seen a surge with more and more consumers becoming health conscious. Also, there are only a few established players in this segment like Tropicana and Real. We were looking at diversifying our business in the food segment and this space looked full of opportunities to grow our business. We are doing fairly good, with a growth rate of 30-40 percent in this market. SEPTEMBER 2009 35

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/bio

MANTRA/ BE POSITIVE. THERE IS NOTHING IMPOSSIBLE IN THIS WORLD IF YOU WORK HARD. YOU NEED TO CHANGE YOURSELF TO MEET THE CHANGING NEEDS OF THE CONSUMERS TO BE SUCCESSFUL. You are getting into confectioneries too. What is the plan to gain a foothold? In the confectioneries market, there are a lot of players in the country. However, most of them are regional. At a national scale, there are only a few players in this market. There is enough room for more players to enter this segment on a national level. We have a strong brand building and distribution capabilities in our biscuits segment. We plan to use the same channels and our existing networks to target the same consumer group as our biscuit segment. So, as far as capturing a market in the confectioneries segment is concerned, it should not be a problem for us.

How about your contract with the IRCTC? We have to set up food kiosks for sale of our products i.e. biscuits & juices. We plan to do this at about 200 railway stations which will translate into approximately 500 food kiosks spread across various cities in India. Around 150 kiosks will be functional soon. Of course, doing all of this is a challenge in itself. But then, expansion is always a challenge in businesses. For us, this contract largely means a lot of visibility, which will help us in strengthening our brand building exercise.

Where is the big money? Right now, the growing markets are those of fruit juice and confectioneries. The fruit juice business is growing at a steady 30-40 percent. Of course, the biscuit segment is what makes a huge chunk of the current turnover i.e. around Rs 425 crore. As for the juices segment, it is churning about Rs 60 crore.

Does it help to have celebrities as brand ambassadors? We have always had a celebrity who is popular pan-India and can represent a mother-wife image. Previously, we had Priya Tendulkar and now we have Karisma Kapoor. And, yes, it does help to have a known face endorsing your brand. You might have a good business going with a good turnover but if you want to build a brand with a strong recall value, having a celebrity promote your products definitely helps in adding a certain value to it. One noticeable trend is that people today go for brands. For consumers, it does not matter if the product is as cheap as Re 1, as long as it has a brand name to it. So for creating a stronger brand recall, we plan to have multiple celebrities endorsing our brands.

What’s you take on the rural markets? One should not ignore the fact that a very large segment of our country’s population still lives in rural areas. Keeping this in mind, we accord a high priority for marketing and distributing our products in these markets. Our approach has been to enable small scale distributors to take up our products at a very local level. These distributors happen to be very industrious and help us in penetrating into rural markets.

One unforgettable milestone achieved... As a company, we grew at a stable Rs 20-25 percent per annum. In the year 2003, the company touched the Rs 100 crore turnover. For me, reaching that figure has been the biggest and most unforgettable milestone. Right now, we are sitting at Rs 500 crore. The next challenge is to hit a Rs DAR E 1,000 crore mark by 2011.

SMS: “DARE <your comments, questions or suggestions>” to 56677 Email: dare@cybermedia.co.in Website: www.dare.co.in Follow us at: http://twitter.com/daretostartup 36

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policy/startup

Legal formalities for starting a company in India Starting a new business is not rocket science if one keeps the basic legal requirements in mind. The present article lists down the main legal formalities required to start a Company form of business in India. /Atul Kansal and Lalit Bansal

here are many forms in which a business can be organized. Usually, the following models are popular: • Sole Proprietorship • Partnership ,including Limited Liability Partnerships called (LLP) • Company – Public/Private While there are certain processes that are common to any form of business organization, each one of the above has certain peculiar requirements. This article analyzes the requirements for starting a Company. These may vary from State to State and may change from time to time. Also a business may require additional (or not all of the below mentioned) registrations, compliance and certifications.

the Registered Office of the Company is proposed to be situated. The application is to be signed by one of the promoters and must contain the following details: Minimum 2 alternative names for the proposed Company. (The name can be coined names from the objects of the Company or the names of the directors, etc. but should definitely be indicative of the main object of the Company. Justification for the name needs to be specified along with the application). Names and address of the members (minimum 7 for a public Company and 2 for a private Company). Authorized Capital of the Company (Minimum Rs.5 Lac for a public Company and Rs. 1 lac for a private Company).

Incorporating your company Name approval The first step in getting your company registered is the approval of name for the Company. Generally, it takes about seven days to get the approval. The following steps are required for name approval: You have to file an application in Form No. 1A with the Registrar of Companies (ROC) of the State in which 38

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Main objects of the Company On submitting the application, the ROC scrutinizes the same and sends the approval/objections in about 10 days to the applicant. Director Identification Number (DIN) Directors for an Indian company, both Indian and foreigners, must register and get identification number

under the new requirements. It is called Director Identification Number (DIN). The application needs to be filed online. The form along with the supporting documents (PAN Card & Residence proof duly attested by CA, Notary or Gazette Officer) is to be sent to the offices designated by respective ROCs. The fee for obtaining DIN can be deposited online or deposited in banks authorized for this purpose. Digital Signature Certificate (DSC) Directors for an Indian company, both Indian and foreigners, are also required to get Digital Signature Certificate (DSC). DSC is required for all Directors or authorized representatives of any Company as well as the professionals who will sign ROC forms or documents.

Memorandum and Articles of Association (Memorandum and Articles respectively) While the Memorandum states the main, ancillary/subsidiary and other objects of the Company, the Articles contain the rules and procedures for

DARE.CO.IN

policy/startup the routine conduct of the Company. The Memorandum also states the authorized share capital of the Company and the names of its first directors. Memorandum and Articles also need to be stamped. The stamp duty depends on the authorized share capital.

Documents Required to be Filed with ROC The following documents are required to be submitted to the ROC : Memorandum and Articles - These are required to be executed by the promoters in their own hand in the presence of a witness in quadruplicate stating their full name, fatherâ&#x20AC;&#x2122;s name, residential address, occupation, number of shares subscribed etc. Form No. 1 - This is a declaration to be executed on a non-judicial Rs 20 stamp paper by one of the directors of the Company or other specified persons such as attorneys or advocates stating that all the requirements of the incorporation have been complied with. Form No. 18 - This is to be filed by one of the directors of the Company informing the ROC of the registered office of the Company. Form No. 29 - This is the consent obtained from all the proposed directors of the Company to act as directors of the Company. (Not required in case of private Company). Form No. 32 - This states the appointment of the proposed directors on the board of directors from the date of incorporation of the Company and is signed by one of the proposed directors. Name approval letter in original. Power of Attorney signed by all the subscribers to Memorandum authorizing one of the subscribers or any other person to act on their behalf for the purpose of incorporation and accepting the certificate of incorporation. Power of Attorney in case of a subscriber who has appointed another person to sign the Memorandum on his behalf. Applicable filing fees. These documents need to be filed

online first and then a physical copy should be submitted to the ROC.

currently applicable. The rate of service tax presently is 10%. Web resource : exciseandservicetax.nic.in

Certificate of Incorporation After the above documents are filed, the ROC calls the attorney on a specified date for scrutiny and making corrections, if any in the Memorandum and Articles filed. On complying with the same, the certificate of incorporation is sent by post to the registered office of the newly registered company. Web resource : mca.gov.in

Labor Laws The Shops & Establishment Act The Shops and Establishment Act is a State legislation and, thus, each state has its own rules for the Act. The objective of this Act is to lay down statutory obligation and rights of employers as well as the employees. Registration of shop/establishment is mandatory within 30 days of commencement of work.

Income Tax related compliance Permanent Account Number (PAN) After incorporation, the Company must obtain its PAN. For this purpose, an application needs to be filed with the Income Tax Department in Form 49A with the necessary documents. PAN is mandatory for opening of Bank Account, filling of Income Tax returns and various other financial transactions. Tax Deduction Account Number (TAN) After incorporation, the Company must also obtain a TAN. For this purpose, an application needs to be filed with the Income Tax Department in Form 49B with necessary documents. TAN is required for depositing of TDS/TCS. Web resource: incometaxindia.gov.in

Other Tax compliance Value Added Tax VAT registration is required for a trading business. This is to be applied for to the local Sales Tax Department in the prescribed forms along with specified fees and necessary documents. On completion of the formalities, a Tax Identification Number (TIN) is granted. Professional tax It is a tax on profession (including employment). Professional tax is applicable in some states in India and the rate of tax also varies from State to State. Service Tax Service tax is applicable on an entity which is engaged in providing prescribed services. There are more than 100 services on which service tax is

Employees Provident Fund Organization Provident fund registration is compulsory if the size of your workforce is 20 or more. The employer is required to provide necessary information to the concerned regional Provident Fund Organization (EPFO) in the prescribed form for allotment of Establishment Code Number. Employees State Insurance Corporation (ESIC) Employeesâ&#x20AC;&#x2122; State Insurance Scheme of India is an integrated social security scheme tailored to provide social protection to workers in the organized sector and their dependents in contingencies such as sickness, maternity or death and disablement due to an employment related injury or occupational disease. The ESI Act, (1948) applies to the following categories of factories and establishments in the implemented areas:Non-seasonal factories using power and employing ten (10) or more persons. Non-seasonal and non-power using factories and establishments employing twenty (20) or more persons. The employer is required to provide necessary information to the concerned regional ESI department in the prescribed form for allotment of Establishment Code Number.

Miscellaneous Importer Exporter Code (IEC) IEC Code is mandatory for doing imDAR E port or export. SEPTEMBER 2009 39

DARE.CO.IN

blogs/opinion

The Steady First Step The journey of a thousand miles begins with the first step. And for a startup and an enterprise in its beginning stages, it could very well define the difference between survival and defeat

/Vijay Anand

ndia is a blossoming nation, with the enterprising spirit growing wings and beginning to attempt its first stages of flight, at least on a mainstream level. It is no longer uncommon to see young professionals stepping out to pursue their dreams and to setup their own enterprises. Whilst we are right on track on the beginning of this journey and in the attitude we wear in building a nation that stands on its own, there are many things we must learn. Patience and endurance would be the first among them. The West has taught us to be demanding and to live with the “live now” mentality, but when the entrepreneurial landscape is yet nascent to support such pressures what lives on are feelings of frustration and angst, and ultimately giving up. One must understand that the key milestone that we as a startup nation are trying to cross is the fact that we go from the first generation of entrepreneurs to the second one—with that experience and surrounding wisdom come a lot of added benefits. In a lot of ways, entrepreneurship is a lifestyle. Professionals who work for a living, would never quite understand it. Every idea is like a child

that is born into this world and raised with grand visions of what she would become. Not all of them come true. Most often than not, it is getting common and hence very unfortunate to see early-stage companies dream very big dreams. Dreams are not bad by themselves, but not knowing how to get there is. With dreams that big and with a “won’t die” attitude, if one does not find the way to reach the goal, what we usually have is a startup that is past its expiration date and has lost its way—both the founder as well as the team are a case of lost sailors in the sea. We are first-generation entrepreneurs and the entrepreneurial ecosystem being in the emerging state that it is, throws its fair share of variables into the equation. Dreams are great, but an execution plan is crucial. And

If you are a first-time entrepreneur driven by a lot of passion and vision, then the first step is quite simple. Success begets success. Take a problem, even if it is small, and solve it really well

along the way when you start pitching that dream to those around you to raise the support that you require, what is even more crucial is for them to see what the fruits of your labor have been so far. Success begets success. If you want to build the next Apple, Google, or Microsoft, none could be happier for you than the community of entrepreneurs all around you. But it is crucial that you start with a well-defined task—the first product where you can truly bring in the answer to what is uniquely you and the contribution of your team to solve such a problem. If the solution that you provide creates value, free markets will do the rest to bring in partners, clients and the right capital to take you to the next level. If you are a first-time entrepreneur driven by a lot of passion and vision, then the first step is quite simple. Success begets success. Take a problem, even if it is small, and solve it really well, Differentiate in terms of execution, detail, customer service, design and the strength in which you understand the problem and the whole world will open up to see what DAR E you come up with next. Vijay Anand is an entrepreneur who has experience starting and building various technology startups, starting at the young age of 16. He is currently the Incubation Manager at RTBI, an incubator in IIT Madras that focuses on building rural-focused businesses. He is also the founder of Proto.in, India’s premier technology showcase event and is involved in various initiatives that are shaping up the emerging entrepreneurial scene in India. He blogs as The Startup Guy at www.vijayanand.name and tweets regularly at www.twitter.com/vijayanands.

SEPTEMBER 2009 41

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strategy/aviation

Airlines in trouble: Different players need different solutions A quick analysis of available numbers seems to suggest that the path to profitability for different domestic airlines will be different. Their problems are not just high fuel and airport costs

/Krishna Kumar and Vivek Kumar

SEPTEMBER 2009

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strategy/aviation

Is the way to profitability through shorter hops rather than longer hauls? Would regional operators be more likely to be profitable than national ones?

uch media real estate has been spent on the woes of the domestic airline industry and the huge losses that it is facing. Almost universally, the villain has been made out to be the high cost of Aviation fuel, the specialized petroleumbased fuel used to power aircraft. Some, from within the industry, have occasionally pointed an accusing finger at the high tax rate on Aviation fuel levied by some states as well as the high landing, parking and handling costs at some of our airports. On the other side, low cost carrier SpiceJet literally surprised everyone by announcing a small operating profit for the last quarter. We looked at some of the available numbers for the industry and came up with the distinct feeling that both the problem and its solution may not be the same for all the players. That is, the source of the current problems faced by airlines may not be just high fuel costs and taxes and that the solution may not be just a reduction in these two items. Before we proceed further, do remember that this analysis is only indicative and uses publicly available data. Some of the data may be outdated or reasonably inaccurate. Other things being equal, one of the key elements that determine the profitability of an airline is its Passenger load Factor – the average percentage of seats that are full in an airline flight. The current load factor for domestic airlines is in the 70-80 range. The other key element is the average realization per seat. For the purpose of this analysis, we took the fares of a morning flight around 8 am from Mumbai to Delhi five days ahead, less the taxes and Airport fees (User service fee, USF) as the earnings per seat. In the case of airlines that do not have Mumbai – Delhi flight, we took a flight of similar distance on a common

route that they operate. We took Mumbai – Delhi because this route accounts for the bulk of traffic and operations in the country. The table below is a summary of the data available and the basic calculations we carried out. We did not use the financial data for Air India because details for Indian Airlines was not separately available. Go Air, Indigo, Paramount and MDLR do not disclose financial performance.

Our first question was: Can the airline break even by filling in more seats? For this we calculated the additional amount that can be earned by selling one more seat in every flight. As can be seen from column 6, based on the number of flights that the airline operates per day, Indian Airlines (the domestic code for Air India) stands to earn as much as 10.3 crore per quarter if they can sell just one seat more in every flight they operate. By the same token, SpiceJet could afford to sell six seats per flight less and still break even. Kingfisher earns the highest per seat at Rs 11.3 crore per quarter. From this, it can be inferred that for Jet Airways, the challenge is much more complex as it has to sell 49 seats more per flight to break even – virtually an impossible task! Similarly, Kingfisher, also will find it virtually impossible to make up for its losses by selling more seats as it will have to sell 21 seats more per flight at current realization to break even! In real life, it may be more practical for an airline to focus on chosen flights and sell say 10 more seats in each of them rather than sell one more seat in every flight.

That took us to the next question: Are the number of turnarounds optimal? A given aircraft does more than one flight per day and the time between two flights, that the aircraft SEPTEMBER 2009 43

DARE.CO.IN Airlines

Indian Airlines

strategy/aviation No of flights per day

No. of aircraft

Realization for one extra seat sold on every flight (excluding taxes) (Rs.)

Amount earned per day per seat (Rs.)

Amount earned per Quarter per seat (Rs. Cr)

424

3235

1371640

Profit in Q1 FY10 (Rs. Cr.)

No. of extra seats to be sold to make up loss

Trips per aircraft per day

Additional income per quarter by doing one more trip per day with 100 paid passengers

10.3

4.5

228

GoAir

2051

121009

0.9

7.4

IndiGo Airlines

137

2625

359625

2.7

6.5

Jet Airways

163

3750

611250

4.6

2.2

208

Jet Lite

113

2194

247922

1.9

2.2

6.3

Kingfisher Airlines

377

3987

1503099

11.3

-242

7.5

150

3500

28000

0.2

2.7

14.4

10.3

MDLR Airlines Paramount Airways

9458

680976

5.1

SpiceJet

196

3199

627004

4.7

-225

26.3

-6

Indian Airlines-an average no. has been calculated for flights per day.

Fleet Size Aircraft type

Indian Airlines

Go Air

Indigo

Jet Airways

Airbus

Boeing

ATR Others SOURCE: airfleets.net

spends on the ground getting cleaned and with passengers disembarking and embarking, is the turnaround time. In the absence of exact data, we simply divided the number of flights per day operated by each airline by the number of aircraft they own. (In real life, this is not as simple, given that some aircraft may not be used because of repairs, etc. and longer flight durations means lesser number of operations per day). Column 9 gives the calculated average trips per day for the different airlines. SpiceJet seems to be doing 10 trips per aircraft per day, while Indian Airlines is doing only 4.5 trips per day and Jet Airways is doing just 2.2 trips per day! Now, if each airline were to be be able to do one more trip per day per aircraft, and have 100 paying passengers in this additional flight, what will happen? The results are astonishing to say the least and are available in 44

SEPTEMBER 2009

Jet Lite

Kingfisher Airlines

MDLR Paramount Airlines Airways

SpiceJet

31 14

19 19

Indian Airlines-ATRs and CRJs under Air India Regional has not been taken into consideration

column 10. Keeping operating costs aside, Jet Airways would almost wipe out their quarterly losses! And Kingfisher would reduce its losses by as much as 60 %. More number of flights per aircraft per day automatically means shorter flights. So, is the way to profitability through shorter hops rather than longer hauls? Would regional operators be more likely to be profitable than national ones? Should the national players reorganize themselves into federations of regional plays, much like telecom is organized into circles? Is a multi-hub model the route to profitability for national players?

Embraer. Kingfisher operates two distinct kinds of aircraft – Airbus and ATR, as does Indian Airlines – Airbus and Boeing. Jet Airways operates three types of Aircraft, the Airbus 330, Boeing 737 and ATR. Operating multiple types of aircraft and multiple variants within them (Jet Airways for example operates thirteen 737-700’s, thirty one 737-800’s and two 737 900’s) means that you need people certified to maintain, manage and fly each one of them separately. Also your spare parts inventory has to cover all variants that you operate. All these lead to higher operating costs.

Conclusion What about the fleet? SpiceJet operates one type of aircraft, the Boeing 737 Next Gen. Paramount, which does not disclose financial performance, but claims to be profitable also operates on kind of aircraft – the

Even given external factors like high fuel prices and airport charges that they have no direct control over, different domestic airlines may well find their path to profitability to be unique and differDAR E ent from that for the others.

DARE.CO.IN

/contest

Write a business idea around this picture at http://www.dare.co.in/contest/sept09

The idea can be as crazy as you wish, but should somehow link to the picture. Detailed business plan is not required. Last date for submission: September 21, 2009. 3 winners chosen by the Editor, will receive Liberty Moda PellĂŠ Laptop Strolley each worth Rs. 4,999/-. (The prize will be shipped only within India.)

SEPTEMBER 2009 45

DARE.CO.IN

Sandeep Daga Director, Nine Rivers Capital 46

SEPTEMBER 2009

funding/strategy

DARE.CO.IN

funding bio /investor /strategy Nine Rivers Capital is an India-centric Private Equity Investment Manager/ Investment Advisor focused on providing growth and expansion capital to Small & Medium Enterprises (SMEs). Sandeep has an experience of over 15 years in the areas of private equity investing and corporate finance. Prior to setting up Nine Rivers Capital, he cofounded Axis Holdings, an India centric private equity firm, where he was a member of the investment committee and played a vital role in fund raising as well as originating deals.

hat are some of the challenges of investing in small and medium enterprises? In most SMEs, the biggest challenge is to create a management organization that can cope up with the growth. Typically, when we invest, the decision making structure in the company is very founder-centric. While there may be reasonable delegation of day to day activities, both strategic and tactical decision making remain founder-centric and founder’s own bandwidth becomes a big bottleneck in managing growth. As a PE investor, we have to purposefully

09. Pranav is the leading formworks player in India with its products being used in key infrastructure projects in India and the Middle East. What do you look for before making an investment? How much money do you plan to invest in the next one year? Foremost, we look for good people – a set of good promoters and management team and then obviously an attractive business model that exhibits high growth prospects and sustainability (or even expansion) of margins because of certain competitive advantages inherent in the business model. Nine Rivers Capital plans to make 4-5 investment in the next one year typically of around US$ 10m each. What kind of support do your portfolio companies get from you? Usually, our portfolio companies appreciate our significant contribution in the areas of strategic planning, identifying senior management talent, identifying inorganic growth opportunities and strengthening financial planning and control systems. There is a perception that when investors come in they try to have their way. Have you seen your portfolio companies getting skeptical about this? This is a mis-perception prevailing amongst many entrepreneurs, especially those who seek PE funding for the

investor of the month engage the founder to expedite the process of getting more decision making brains into the company and speeding up the transition to a distributed decision making structure. Additionally, we also often encounter situations wherein business planning and control systems need to be strengthened usually through adoption of modern technological tools and augmentation of relevant human resources.

first time. I firmly believe that if both the PE investor and the entrepreneur clearly understand each others expectations, right upfront, from the relationship they plan to get into, the subsequent journey is smooth, purposeful and value creating for both sides. There are enough PE backed firms in the listed markets or otherwise that bear testimony to this.

How has your investment strategy changed in view of the current economic slowdown? Our investment strategy hasn’t really changed because of the slowdown because the global meltdown was already underway when we started investing. However, over the past 3 quarters, we have tweaked our investment strategy with a sharpened focus on high value added infrastructure ‘enablers’ – companies that supply vital goods and services to various infrastructure segments in India such as energy, transportation, oil & gas, roads, ports, aerospace etc.

What kind of returns do you look at, and what is your exit strategy? I would not like to talk about numbers but over the life of the investment, we do expect returns that are significantly better than public market returns else we have no business to be doing what we are doing. Our exit strategy is likely to be a mix of IPOs or strategic sale with a slight domination of the former.

How many investments have you made so far? What has been the ticket size? Nine Rivers Capital made its maiden investment of US$10m in Navi Mumbai based Pranav Construction Systems in Jan

Do you plan to invest across sectors or are you focused on some? Which sectors are you betting big on and why? As such we are sector agnostic but look at businesses that would be direct or indirect beneficiaries of the infrastructure led growth story of India as highlighted in point DAR E 2 above. SEPTEMBER 2009 47

Doing Business in

A world-class infrastructure, supportive government policies, and an access to a larger market in the Asia-Pacific region make Singapore an excellent destination for doing business /Vimarsh Bajpai

hen Nina Alag Suri landed in Singapore in 2005, she had the dream to start her business from scratch. Having done business earlier in the rather difficult market of the UK, Suri found that starting a business in Singapore was a “cakewalk.” Getting office space and quality people was extremely easy for Suri, the founder and CEO of Nastrac Group of Companies. “Singapore is like a hub. Most of the companies base their Asia-Pacific headquarters in Singapore. But the business does not limit to Singapore. You do a lot of regional business in Hong Kong, China and Australia,” says Suri, who recently concluded an acquisition. Nastrac is a player in the staffing and recruiting industry. 48

SEPTEMBER 2009

Suri is not the only one who is happy doing business in Singapore; there are over 3,800 Indian firms in the country, dotted across diverse sectors such as IT services, education, logistics and manufacturing. The big names include IT majors such as TCS and HCL, logistics

DARE/opportunity areas • • • • •

Information Technology Telecommunications Health and Wellness Urban Solutions Education and Manpower Development

player Gati, and manufacturing sector biggie Usha Martin. Bilateral trade between Singapore and India has grown significantly in the last five years, and with the Comprehensive Economic Cooperation Agreement (CECA) in action, entrepreneurs in both the countries could look for more opportunities.

Why Singapore? Singapore’s strategic location, worldclass infrastructure and a multilingual workforce makes the country an attractive destination to do business. Take the case of TCS. The IT major has set up its international APAC headquarters in Singapore, which functions as a hub of operations for its regional offices in China, Korea, Taiwan, Malaysia, Australia and New Zealand. “The

DARE.CO.IN

strategy/going global

Eng Keat Lee Regional Director Singapore Economic Development Board How is Singapore reassuring investors during the slowdown? The downturn has helped ease inflationary pressures and allowed us to turn our attention towards preparing for the future. From that perspective, we tend to call our efforts upturn measures rather than downturn measures! The key focus is training our manpower. Unemployment currently stands at about four percent. Though this is a relatively low rate, we are not taking things for granted and are actively facilitating science, technology and engineering training. We are helping to boost the capabilities and retaining experienced manpower, especially in the growth industries. There are new programs whereby instead of retrenching the workers, you could send them for training. A large part of the training cost is covered by the Singapore Government and companies can claim absentee pay. Some of the other efforts include facilitating cash-flow by enhancing tax exemptions on foreign source income, enhancing the provisions for capital allowance and allowing companies to convert some of their losses into cash refunds.

What are the new opportunity areas for investors in Singapore? The key interest from Indian companies so far has been the use of Singapore as a base to tap the region. Interest first started from the IT industry. In addition, there has been significant awareness to set up trading activities here. New areas where companies can explore opportunities are described by what we call growth themes such as urban solutions and health and wellness. Looking at some of the statistics and macro trends, half of the worldâ&#x20AC;&#x2122;s population is going to be moving into cities. With the increasing crowd in cities, the world would need solutions for urban mobility or transport, homeland security, environment and water. We are positioning Singapore as a living laboratory for companies to develop their ideas to products or solutions that could be eventually marketed to the world. The Singapore government is quite open to test bed new innovative solutions that companies might bring forward, which could eventually use Singapore as a reference point to target other markets in the world. The other area is of health and wellness. This is partially born out of Singaporeâ&#x20AC;&#x2122;s own need for solutions in this space. The cost of healthcare has been escalating rapidly and Singapore has an ageing population. We believe there are opportunities to introduce innovative, cost-effective solutions to home care, and also the care in the hospitals. What makes Singapore an attractive destination for investors? The ease of doing business in Singapore is one of the key factors. Indians companies are comfortable that Singapore practices common law with the background being the British law. In recent times, some Indian companies are using Singapore as an arbitration platform to settle disputes. There are a lot of business opportunities in Asia and Singapore is one of the good locations to use as a base to seek those potential opportunities because of the cosmopolitan nature and the connected nature of the Singapore economy. We are by no means a low-cost location but we are a cost-effective location because if you look at our rentals, the cost of infrastructure, etc. it is comparable to some of the Indian cities, like Mumbai. Singapore is a home for talent. Its safe and secure environment allows talent to be comfortable as in a home away from home.

How is the tax system in Singapore favorable for foreign companies? The taxation system has a few key characteristics. There is corporate tax, individual tax and the goods and services tax. For corporate tax, Singapore has a one-tier tax system whereby profits and losses at the subsidiary level could be pooled at the parent holding company level. As for the foreign sourced income, if you are repatriating dividends, branch profits or service income from other countries which has a headline tax rate of more than 15 percent, that is also exempted in Singapore under the foreign sourced income tax exemption. Capital gains are also tax exempt in Singapore. When you are looking to bring dividends back to India, Singapore does not withhold taxes on dividends repatriated back to India. This, coupled with the countryâ&#x20AC;&#x2122;s network of double taxation avoidance agreements in Asia, allows you to effectively manage your tax incidence. How easy is it to start a business in Singapore? How much time does it take? And what is the cost? You would need a resident director to register a company in Singapore. The resident does not have to be a Singaporean or a Singapore Permanent Resident or PR. Once that information is ready, most companies would be able to register the company fairly easily online. Some companies take just a day to get it done. To be on the safer side, we sometimes quote ten days to the companies we meet. The registration fee is around Singapore 300-600 dollars. If you are dealing with the domestic economy, such as food and beverage or a night club or a hotel, there will be other regulations that are specific to these industries. How does your agency help entrepreneurs wanting to set up shop in Singapore? For those who are interested in exploring product development efforts or interested in using Singapore to serve the region, we help facilitate introductions that would help them achieve their goals faster. For product development, the Economic Development Board (EDB) helps to identify possible technology partners, such as companies or research institutes that are able to augment their efforts and shorten their time to market. For those wishing to use Singapore as a base for the region, EDB provides suggestions on various partners that have experience in overseas markets. SEPTEMBER 2009 49

DARE.CO.IN

strategy/going global

Imports from Singapore

INDIASINGAPORE TRADE Exports to Singapore

overnment The Singapore g ey are very Th is just brilliant. reigners fo friendly towards p shop in u who want to set nderstand u y Singapore. The that build Es that it is the SM significantly. ry the economy ve ri – Nina Alag Su

anies

strac Group of Comp

Founder and CEO, Na NOTE: Values in US$ Million, Source: Ministry of Commerce, Government of India

Pradeep Menon Chief Executive Officer Singapore Indian Chamber of Commerce & Industry (SICCI) Most Indian entrepreneurs now want to go global on the first day. How good is the strategy to venture abroad? It is encouraging to know that Indian entrepreneurs are looking beyond the shores of India. Every entrepreneur should look at global opportunities to source better quality and cost-effective products or to locate in external foreign currency markets for their products or for going in for technology transfer or learning the best practices. Despite the fact that India has got a huge market, there are many merits in venturing out as well. Of course, not at the expense of the domestic market, but having both of them side by side. In that regard, we are seeing a constant stream of companies coming out. Invariably when they do so, Singapore seems to be the location of choice to have your first staging post. How good is the presence of Indian companies in Singapore? I think Singapore is home to most Indian 50

SEPTEMBER 2009

companies than any other in the world. We have 3,500 plus companies in Singapore. There are companies coming out of India, basically majority-owned or controlled by personnel of Indian nationality. This does not include the companies in Singapore that are owned by people of Indian origin. If you add that, then it is a much bigger number. The reason why companies come out to be based in Singapore is because it is a stepping stone to the rest of the AsiaPacific region. Even in ASEAN countries, with a population of 550 million people and a trillion dollar economy, if you put that collectively, it is a very attractive market. You can’t find a better channel to enter into this market than through Singapore. Within ASEAN there are tax concessions and a whole host of benefits. Today more than 50 percent of India’s bilateral trade with ASEAN flows through Singapore. How could Singapore be helpful for Indian companies wanting to do business with China? If you look at the trading relationships, one of the fastest growing is the one between India and China. That has grown from a mere $300 million perhaps a decade and

DARE.CO.IN

strategy/going global DARE/doing business Ease of…. Doing Business Starting a Business Dealing in Construction Permits Employing Workers Registering Property Getting Credit Protecting Investors Paying Taxes Trading Across Borders Enforcing Contracts Closing a Business

2009 Rank 1 10 2 1 16 5 2 5 1 14 2

2008 Rank 1 9 5 1 13 5 2 3 1 3 2

Change in Rank 0 -1 3 0 -3 0 0 -2 0 -11 0

India 122 121 136 89 105 28 38 169 90 180 140

Source: World Bank Doing Business 2009 Report

reason why companies come out to be based in Singapore is because it is a stepping stone to the rest of the AsiaPacific region. Even in ASEAN countries, with a population of 550 million people and a trillion dollar economy, if you put that collectively, it is a very attractive market,” says Pradeep Me-

non, CEO, Singapore Indian Chamber of Commerce and Industry. “The Singapore government is just brilliant. They are very friendly towards foreigners who want to set up shop in Singapore. They understand that it is the SMEs that build the economy very significantly. It was extremely easy to

a half ago to about $30 billion. Analysts who study the two economies say that if you look at the real potential, it should be around $100 billion by now. India and China are neighbors and they could have a lot of democratic similarities, but no two countries from a cultural and business standpoint can be further apart. The big players within the business fraternity would know how to go about tapping it. They will have their own resources. But there is a huge number of SMEs on either side, and those companies have to think how they can tap each other’s huge market. Because you are not familiar with the place, you don’t speak the language, and you don’t know the culture, so there is this perfect bridge called Singapore with which both the Indians and the Chinese are quite comfortable. If you go through Singapore, it makes the job a lot easier. Take the example of TCS, which spring-boarded into China through Singapore. It used Singapore’s manpower and expertise to get into China.

you cannot do it in India. You have to be in Singapore, especially companies in the IT sector. Singapore is not just a market. It is a hub, has the world’s busiest port, it is a hub for logistics, hub for finance with more than 1,600 financial institutions here. It is a hub for telecom, tourism, hospitality, education, healthcare, etc. Being a hub, if you are in these sectors, you have got to be where the core is. You got to have a presence there. If you are not, you cease to be a regional player, let alone a global player. That is the reason why companies are coming here. If they want to source, they can source it here in Singapore. If they want to sell, they come here. With excellent infrastructure and connectivity, this is an extremely conducive environment for business.

How important is it for companies to be present in Singapore? How does it help? Singapore is home to over 10,000 MNCs. If you are vying to tap this as your customer,

How easy is it to raise money for your business? There is no such thing as free money, but it is a free market with a fairly easy environment. However, the onus is on the entrepreneur that he has a good business plan, a quality product and service and it is going to be a viable business. Money is available; it is a question of how you prove that you deserve that money. If you can put a plan

set up a company,” says Suri. Despite recession, she was able to get a loan at attractive interest rates, as part of the program launched by the government to battle recession. “The recession was so severe and cash was such a huge problem. The loan program was a big help,” she says. “You don’t have to run after them. They had an account manager, who would come to my office, and did all the paper work for me,” adds Suri. No wonder, Singapore ranks top on the list of countries on the ease of doing business parameter of the World Bank’s Doing Business Report 2009. Singapore’s world-class infrastructure, highly educated manpower, and supportive government policies make it an excellent destination to do business. According to the Globalisation Index 2007, Singapore leads in foreign trade and investments. The Global Enabling Trade Report 2009 has ranked Singapore on top for having the most open economy.

together and can fund it yourself partially or find the money from your friends and prove that it’s doing well at the mezzanine or the phase two level, then there are plenty of institutions that have come in. The government has lot of schemes and grants to help but only after a certain track record has been built. What role does the Singapore Indian Chamber of Commerce play? We are a Singapore entity but we are focused on Indian businesses and naturally the ethnicity also has the roots back to India. So we have a predominant portion of our resources and attention focused on India. We help Indian companies of Indian ethnicity here in Singapore to grow and expand outwards towards India and the rest of the world. We also help Indian companies coming in from India to establish themselves here and go beyond. Then, we also help non-Indian companies, be it multinationals who are based here or the local Chinese companies to engage with India. As far as SMEs are concerned, we help them depending upon which stage of development they are in. For SMEs we run DAR E between 70-100 events annually. SEPTEMBER 2009 51

DARE.CO.IN

strategy/finance

What’s the Option:

Debt or Equity for your Business? D

eciding on the source of capital to start or expand your business is a major challenge. All businesses—whether they are small, medium or large, face different issues relating to financing. Major issues are control, cost of financing, optimal ratio of debt-equity, history of business, market conditions and future prospects of the business. There are three main routes to finance a business— debt, equity and internally-generated funds (like profits).

Equity financing and the current scenario During the last one year, equity financing has lost its sheen and has not

DEBT IS GOOD WHEN ■ ■ ■

■

■ ■

the business has enough collateral interest rates are low and stable the business has healthy cash-flow history it’s a low risk business and has stable future prospects promoters want to have enough control and seek quick decision-making credit ratings are good and unaffected by that debt interest is tax deductible short-term funding is required

EQUITY IS GOOD WHEN ■ ■

■

■ ■

no collateral available to qualify for debt it’s a start-up with no history of cash-flow promoters are ready to part with some control over the organization it’s a high risk business when sentiments and confidence in market and economy are positive SEPTEMBER 2009

been very successful in attracting customers to invest in equity. However, the recent surge in the equity market is giving out better signals. For example, National Hydroelectric Power Corporation (NHPC) IPO got fully subscribed within minutes of opening. According to T. Jagannadham, head of equity, SMC Capitals, “Revival in the IPO market seems to be round the corner but a company should have a good image, a good business model, a feasible plan, integrity in management, etc to make it a success.” Public offer issue size varies from industry to industry. However, public offers are feasible to meet the requirement of at least Rs 200-250 crore. Jagannadham points out that in 2008 markets came to a standstill and equity market dried up. But when revival started in April 2009, companies have come up with qualified institutional placement (QIP), American Depository Receipts (ADRs) and Global Depository Receipts (GDRs) and now when the market has recovered and signs are optimistic, companies are thinking of taking the IPO route. Also, private equity players are getting active now though they are not as active when the markets were at their peak. According to Venkat Subramanyam, Founder Director, Veda Corporate Advisors, “Markets are looking up though the equity markets are a bit volatile. Private equity players have a huge interest in power, healthcare, education sectors and so on and there are chances that their interest will continue in the future.”

Financing a business depends on a host of factors including the type of business, economic scenario, the stage of the business, and the risk appetite of the promoters. The situation has improved in both debt and equity market but lenders and investors are still cautious. /Manu Gupta With regard to venture capital, Venkat points out that VC funding is the option if one needs Rs 20-30 crores and above. However, for this kind of funding, one needs to have a good business, attractive business plan, must be able to articulate and convince and so on. Funding by venture capitalists has gone down significantly during the slowdown but would pick up once the economy revives. Unlike ten years ago, there are now plenty of VCs. Also, there are enough opportunities to tap money

The right combination of equity and debt is the key in terms of financing. However, this combination varies from industry to industry and the climate in which the businesses are operating.

— Venkat Subramanyam Founder Director, Veda Corporate Advisors

DARE.CO.IN

strategy/finance from high net worth investors and angel investors. ADRs and GDRs are instruments to raise capital in America and other countries respectively. In the last 45-60 days, activities in ADR and GDR markets have picked up but the situation is still not good for small companies.

Debt financing and the current scenario Debt financing is the common mode of financing for small start-ups that cannot attract equity investors. According to Jagannadham, to get the public to invest in debt instruments, interest rates offered on these instruments should be more than interest rates prevailing in the bank industry. For example, if the interest rate on fixed deposits is eight to nine percent then the rate of return on these debt instruments should be three to four percent higher, that is around 12-13 percent. However, he said “to get the public to invest in these instruments, a company should have a good track record, high credit ratings, they should have integrity in the management, etc. Simply three to four percent extra interest won’t justify the public business point and the public won’t respond to the deposit issue.” According to Venkat, convincing people for debt is relatively easier than convincing people on equity, because equity is capital and high risks are associated with it. Also, banks these days are flushed with funds. So liquidity does not seem to be a problem. Interest payments on debt are often tax deductible, which is an added advantage. Furthermore, debt financing is easy to administer in case of small firms. However, the difficulty faced by start-up in case of debt financing is qualifying for a debt as they do not have cash-flow history, credit rating and often collaterals are inadequate on which loans are dependent. Debt norms and interest rates also play a crucial role in determining financing of a business. However, according to Jagannadham, interest rate movements should not be given too much importance. If debt is sought by a business and if that is available, then the entrepreneur should go for that

SOURCES OF DEBT ■

Bank Loans

■

Public Deposits

■

Non-convertible Debentures

■

External Commercial Borrowings

SOURCES OF EQUITY ■

Venture Capitalists

■

Public Offer of Equity

■

Right Issues

■

Convertible Debentures

■

Qualified Institutional Placement

■

ADR/GDR

and should not wait for interest rate markets to improve. Venkat says “interest rate is just one part of the whole story. The other important factors are the nature of the business, payback period, returns and optimum debt-equity structure.”

What type of financing to go for? Most often a combination of debt and equity is considered most desirable for a business. However, the proportion of both varies from industry to industry

Revival in the IPO market seems to be round the corner but a company should have a good image, a good business model, a feasible plan, integrity in management etc to make it a success.

— T. Jagannadham Head of Equity, SMC Capitals

and firm to firm depending upon the needs of the business like desirability and requirement of control, availability of the kind of finance, cash-flows of the business, the overall state of the markets and the economy. Equity financing is advisable for high growth, high risk businesses like newly established entities which have high prospects of growth but at the same time there are fair chances of negative returns or losses. Another source of financing for new start-ups is equity financing from non-professional source like family members, friends, etc. This source of financing is common with small businesses. But equity financing suffers from problems like loss of control, valuation of the company, tax on dividends and so on. On the other hand, debt financing is recommended for those businesses that have good future prospects or at least stable earnings. For new small ventures, borrowing is a feasible option. Loans from informal markets are another major source of finance for small businesses. Also enough liquidity has been pumped into the banking structure in the past one or two years. Banks are now ready to lend but the only thing is that they are now more cautious. Financing is highly dependent on the state of the economy and the markets. For example, during 2001-02, only six equity issues by non-governmental public companies were there while the number jumped to 116 during 2006-07 when the market was bullish. Financing a business either through debt or equity or both depends on a lot of factors. According to Venkat, “the right combination of equity and debt is the key in terms of financing. However, this combination varies from industry to industry and the climate in which the businesses are operating.” Also, financing is situational in the sense that the best source of finance may change from time to time for a particular business due to factors beyond the control of business like interest rates, economic situation, etc. So, the source of finance should be chosen carefully as it plays a crucial role in the functioning and fuDAR E ture prospects of a business. SEPTEMBER 2009 53

DARE.CO.IN

strategy/franchising

Franchising your business 54

SEPTEMBER 2009

DARE.CO.IN

strategy/franchising

Before taking the franchising route to grow your business, be sure that you have a tested product or a service, a fairly popular brand, adequate systems and processes and money to spend on marketing /Vimarsh Bajpai

he year was 1994 and Vikaas Gutgutia had just opened a flower shop in New Delhi’s up-market South Extension. The store did brisk business, good enough to convince Gutgutia to expand with a couple of more stores under the brand name Ferns N Petals (FNP). However, the thought of “franchising” his business did not pass the promoter’s mind until one day in 1998, a lady walked into an FNP store looking for trained manpower to open her own flower shop. Gutgutia offered her enough support to open an outlet as an FNP store, in return of a fee and a share in revenue. Thus, the company’s first franchisee got up and running. “The franchising model soon picked up. Today, we have 93 outlets spread over 40 cities. Of these, 13 are company-owned, while the remaining are franchisees,” says Pawan Gadia, VicePresident, Ferns N Petals. The franchis-

Quick Points Franchising, including distribution, is a $20 billion industry in India, growing at 30% annually Franchising is one of the quickest ways to grow your business, but enough groundwork needs to be done in the form of product development, brand building, marketing strategies, and putting in place adequate systems and processes It is good to test-market your product or service with company-owned outlets before doling out franchisees Franchising needs dedicated manpower and resources to make it successful It is important to choose the right people who would run franchisee outlets A franchisee is like a business partner. Therefore, adequate synergy and constant communication is the key to building a good rapport Be clear on the sharing of roles and responsibilities to avoid disputes Make sure that the franchisee has understood the terms and conditions of the franchisee agreement SEPTEMBER 2009 55

DARE.CO.IN ing route has done wonders for FNP, and Gadia claims that on an average, they are opening two-and-a-half outlets a month. “We are looking at 30-40 outlets in the next one year,” he claims. FNP’s growth story is part of the $20 billion franchising industry that is a mix of both distribution franchise business and business format franchising, according to Gaurav Marya, President, Franchise India Holdings. The industry is steadily growing at 30 percent annually. Taking the franchis-

strategy/franchising ed in loss in quality. “Very soon we realized, however, that unless you have local entrepreneurial people, business development just does not happen as much as you want it to,” says Saxena, who tested the franchisee model and discovered that “both the revenue growth and the profit margins were much higher through the franchisee model.” Saxena wants to see Elements Akademia grow from nine cities at present, to 100 cities, and franchising is on top of his mind.

Franchisee Vs Distribution

e on Before you decid out if the franchising, find n successful product has bee different in at least three e customers markets, and if th at purchases. are making repe – Pramod Khera sociation of India VP, Franchising As ing route is one of the quickest ways to grow one’s business, but not until enough groundwork has been done in the form of product development, brand building, marketing strategies and putting in place adequate systems and processes. “It is our clear learning that if you want to grow fast, franchising is the way to go. Running of business will be much better, span of control will be much easier and it will be much profitable,” says Nishant Saxena, CEO, Elements Akademia, that provides training and skill development. Saxena initially thought that while franchising helped a company grow, it almost always result56

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There is a thin line between a franchisee and a distribution model as both are distribution channels that expand the reach of your product or service. In the case of distribution, you authorize someone else to sell your product or service without being bothered as to how he sells it. “In the distribution franchise model, you buy the product or a service from a company and put the board and sell it under their name. It does not come with any business operation guidelines outlining how you have to conduct the business,” says Marya. In the case of business format franchising, you lay down a process as to how the business will be run. It could involve everything from how the employees will dress, to the color of the ceiling and the design of the furniture. “Earlier, there was no discipline in the market. But now it is graduating to a more advanced form of franchising. The identity of the store is very standardized,” adds Marya. The franchising model eliminates the extra layer in the supply chain, thus bringing in extra profits and cost savings.

Why franchise? Once you are sure that you have a product or a service that sells and you are a fairly known brand, the next thing on your mind would be to grow your business as fast as possible. However, there could be limitations to growth in terms of resources such as time, money and manpower. Franchising is the way out,

our own seven We first created fore we could to eight stores be chising. There an fr of k in th en ev first of all in is an investment e and workable bl lla se a ng ti ea cr ice, only then product or a serv t franchising it. ou ab lk ta n ca u yo – Pawan Gadia ls VP, Ferns N Peta as it would reduce your burden to be physically present at all places and at all times. “We deal in a perishable product— fresh flowers—and we realize that the presence of the owner is very impor-

w fast, If you want to gro e way to go. franchising is th ess will be Running of busin n of control much better, spa er and it will will be much easi le. be much profitab na – Nishant Saxe Akademia CEO, Elements

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strategy/franchising Franchising also comes in handy when you have less money to grow on your own. Taking a debt or parting with a share of your company with the investor is not always a great idea. Therefore, franchising helps you minimize the risk and brings in the capital by those entrepreneurs who want to work on a tested business model. So in a way, franchising is like creating a network of entrepreneurs who have the wherewithal to run a business successfully, but do not want to start ur does not ne re ep tr en e from scratch. th If y properly, he it un rt po op Franchising is also less time cone th read ent. m st ve in l ia it suming. You don’t have to bother in e will lose th e th as d he is yourself with looking for property rn Name can get ta t differentiate and understanding customer becustomer does no ee and a havior of a particular city or region. is between a franch tlet. This will be taken care of by the ou person who wants to run your francompany-owned – Amit Nahar chisee. So it saves time too.

sultant

Franchising Con

tant to run this business as we can’t be present in every city. Going in for the franchisee model is the best thing,” says Gadia, who claims that his franchisees can make anywhere between Rs 50,000 to Rs 5 lakh a month.

model The franchising l layers of eliminates severa means you supply chain. It in, which can have extra marg t. . bring extra profi a – Gaurav Mary ise India Holding President, Franch

KEEP IN MIND Strong and replicable processes are at the core of a successful franchise model Standardization is one of the main requirements for a franchise to succeed Franchisee pays an upfront fee for the license plus revenue share as royalty Franchiser provides marketing and branding support, training and raw material inputs, etc the franchises would need a lot of support from you. So it becomes important to check if you have a viable support structure in place.

Risks involved Gearing up to franchise Before you decide to franchise your business, it would be a good idea to check on your preparation. Ask yourself questions such as do you have a proven business model that would create enough revenue for someone else so that he can share it with you. “Check if the product is successful, the brand is known and adequate and robust systems are in place that will ensure that the franchisee route will be successful,” says Pramod Khera, VP, Franchising Association of India. “I would call it the environment. The success of a franchisor would depend on how strong this environment is,” he adds. Running your own outlets for some time to test waters would also be a good idea. “We first created our own seven to eight stores before we could even think of franchising. There is an investment first of all in creating a sellable and workable product or a service, only then you can talk about franchising it,” says Gadia. “You need a standardized product, a strong brand image, a clear operations manual on how the business would be run. Only then you should go about appointing franchisees,” says Saxena. Initially,

The person who takes your franchisee is the one who could make or break your business. Therefore, the biggest risk is that you appoint a wrong person on the job. If he is not able to run the business, eventually you lose money. Therefore, it becomes all the more important that you get the right person to run your franchisee outlets. Money is not as important as your brand. You have to keep a vigil that your brand name does not get tarnished. “If the entrepreneur does not read the opportunity properly, he will lose the initial investment. Name can get tarnished as the customer does not differentiate between a franchisee and a company-owned outlet,” says Amit Nahar, franchising consultant and CEO, Sparkle Minds. Another risk could be in the form of cheating. Your franchisee could be making more revenue than you think, and sharing less with you. This would mean that you stand to lose financially. It makes sense to devise a mechanism to keep track of the revenue that flows in. Educational institutions such as NIIT ensure that they give the study material and the final certificate to their franchisees. This helps keep track of the number of students enrolled for the course by their franchisees. D A R E SEPTEMBER 2009 57

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strategy/branding

What Does Your T-shirt Say? Got offended or riveted to a message or a design flashed from somebody’s chest? If you haven’t, then you are missing a lot of what other people are conveying through this silent conversation! /Vivek Kumar

Things required to start this business 1. Substantial finance 2. Website—with secure payment gateway and a method allowing the users to upload/choose a design 3. Printing machines/inks 4. Basic t-shirts of various qualities and sizes 5. Courier service including logistics 6. Creative team

rinted t-shirts are a real frenzy with youngsters and there are hardly any plain or designless tees that go with somebody’s selection while buying. Kids, grownups, and even elderly people have joined this revolution of a segment that involves machines, fabrics, dyes and, of course, creative designers that can turn the requirement into a visual reality. Interestingly, designers are the main beneficiaries of this business segment. Custom t-shirt printing is getting increasingly popular with lots of options to choose from. Different designs, messages and art-forms can be printed on order as low as for a single t-shirt. There is no limit of what you can print on a t-shirt now. Digital art has removed all sorts of barriers. You can get really interactive with the customers and can make whatever they want to wear. 58

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Arpana Priyadarshini Founder, Pring00.com

How does your business work? Pring00 is into the customized products business where our customers can select designs and messages to be printed on t-shirts, mugs, canvas, posters, mouse pads etc. The things are required to set-up such a business are: A website where people can design their t-shirt and that has regular e-commerce features like shopping cart, credit card transaction facility etc. In-house printing set-up as each t-shirt is unique and screen printing (mass production) is not possible. Good supply chain system/vendor relation for plain t-shirt, printing materials, ink, packaging stuff, shipping etc. And last but not the least, an effective and result-oriented marketing plan.

What present hurdles are there for this business? There are three big hurdles: Low penetration of e-commerce and Internet users in India. People are still reluctant to use credit cards online. Lack of awareness about customized merchandising in India. What marketing methods are adopted? Search engine marketing (SEM) and search engine optimization (SEO). Seminars and ground activation. Newsletters and direct mailers. Online and offline contests. Regular college campus visits.

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strategy/branding Inkfruit follows the second model where a community chosen design in printed. Its CEO Kashyap Dalal responded to this questionnaire. What is required to set up a custom t-shirt printing business? There are two basic things that a business needs in the t-shirts segment. Firstly, a strong differentiated idea. There are enough players in the market and a lot of suppliers who just copy the designs seen on other brands. This approach is very detrimental to developing a strong identity and a Kashyap Dalal and Navneet Rai sustainable business. What is needed is a Founders, Inkfruit sharply-defined theme on which a brand develops. In Inkfruit’s case for example, it is all about being a democratic collection of prints—where our 90,000-strong community of people at Inkfruit.com decide what gets printed in our range. This is novel and not done by any other brand and therefore differentiates Inkfruit from the rest. Secondly, access to capital. In the initial stages this business does require infusing capital to fund inventory and the processes. Later, supply partners take on this responsibility, but in the early stages the business needs to finance the operations. What present hurdles are there for this business? One of the hurdles in this business is that at low volumes it is difficult to find quality vendors who can provide great quality and timely delivery as per commitment. Once a good scale is achieved, then supply can be managed through long-term tie-ups with supply partners. Another is to understand the nature of the market and adapt with changing trends. A t-shirt is a very personal piece of clothing and it is important that products offered gel with current consumer trends. What marketing methods are adopted? In t-shirts as a category, the product itself is the biggest marketeer. If the designs are great and the quality is good, it will start becoming popular. Inkfruit as an organization has stayed away from any above-the-line marketing campaigns. Awareness about our model has largely grown through word-of-mouth, where people who know about Inkfruit and designers whose designs get printed on Inkfruit, talk about it to their friends. We focus very strongly on keeping our members happy—for example our designers get their name on every t-shirt sold and feel very proud of this. Secondly, we focus very strongly on the quality of our products and ensure a great experience every time. Thirdly, we keep innovating and launch new products—like recently we launched color changing t-shirts, which change color when a person walks in the sun. Together all of these things create positive word-of-mouth for a business in this space.

Choosing designs At present, there are two options available to choose a design for a t-shirt. Both of these processes are for online customers only. One way is the uploading of any text message or pictorial design. This method is adopted by providers that deal with varied products like t-shirts, mugs, key-chains, caps and other similar accessories. The customers can

make an account on the website. Then upload a design, message or art-form and order for printing. The second method involves a community where a design contest or similar activity is followed to pick designs. It is very conducive for designers who want to make it big in the market. Inkfruit, Myntra, Pring00, and Picsquare are some names in this sector following single or dual models of designs.

Ranjiv Ramchandani CEO, Tantra What is required to set-up such business? A little money and a lot of passion. To be successful however, you’ll need to have ‘talent’ too. You can start with as little as Rs.20,000,….but Rs.1-2 Lacs is ideal. What marketing methods are adopted? For Tantra, we did a ‘bottom up’ approach, i.e. MBOs to Malls to EBOs. However, this need not be the case for every budding entrepreneur.

Marketing and innovation To market your segment, you need to surprise. Youngsters are key focus for custom t-shirt printing and they can be moody and choosy. There is virtually no limit to this. Tantra started the concept of printed t-shirts carrying varied and funky messages but it does not cater to the custom design printing option. Online marketing, word-of-mouth and viral marketing can be adopted initially. Once the brand has some attention, quality, variety and ease of operations makes it popular with the crowd.

Hurdles Reaching out to a wider market other than online users is usually difficult for this segment. People who do not use the Internet are less probable to buy a product that often includes messages related to IT or computer technology and concepts of digital art. Ramchandani from Tantra says, “one needs to be cognizant of the religious fanatics and the unofficial moral police.” At present, the market for custom t-shirt printing is in its nascent age, but it is picking up quite vigorously. Already established players in different segments are extending their services for this segment and are picking up the market share. However, there is still more that remains to be explored by new players armed with new approaches and new ideas to surprise DAR E the young generation. SEPTEMBER 2009 59

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opportunity/environment Although still in a nascent stage, private weather consulting is picking up fast, thanks to the rise in the number of sectors that need accurate weather predictions to save costs and make profits /Aswathi Muralidharan

Photo: NCMSL

he summers are getting hotter and longer and monsoons have failed, so much so that 246 of the 593 districts in India have been declared drought-hit. The situation is so grave that in the last two months itself, around 20 farmer suicides have been reported from across the country. If you thought that agriculture was the only major sector that is facing the consequences of the change in weather, then you are probably wrong. A number of industries have been impacted, directly or indirectly. What are these industries doing to mitigate the ill effects? Better planning is one option, but for that these players need accurate weather data. And this is proving to be a lucrative business opportunity for a handful of players. Take the case of the cabbage farmers of Uttrakhand. The farmers were suffering huge losses due to unpredictable rainfalls. For them, excessive rainfall meant water logging that led to total washing off of the cabbage seeds, and deficit rainfall meant irrigation-related problems. The result was low yield and subsequent losses. Enter Weather Risk Management Services Limited (WRL), which tied-up with SAFAL to provide weather data to these farmers. The company set up ten weather stations covering the region to provide advance knowledge of weather to these farmers. Now, with this information, the farmers are able to arrange for water supplies in advance, take preventive measures such as spraying pesticides, and so on. The company also offers agro-advisory services and insurance cover to the farmers.

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opportunity/environment The market for private weather consulting in India is still at a very nascent stage. Players started to enter this segment as late as 2003. Anuj Kumbhat, the co-founder of WRL says, “The industry is very fragmented with just a handful of players. And the companies that are there cater to entirely different sectors. And as none of them is a listed company, it is very difficult to determine the size of the industry currently.” The sectors that these players usually cater to are agriculture, media, power, insurance and commodity trading. This is just the tip of the iceberg, as there are a number of industries that are directly dependent on weather and are yet to be tapped. This brings us to the most pertinent question—why are these industries not opting for data from the Indian Meteorology Department (IMD), which has the best of the researchers, good infrastructure and provides information for free?

Looking beyond the IMD The major private players in this sector, whom DARE spoke with during the course of this story, accepted that they were not competing with the IMD, instead complementing the organization’s work. According to Yogesh Patil, Assistant Manager, Crop & Weather Intelligence Group, National Collateral Management Services Limited (NCMSL), “IMD currently has around 525 automatic stations at the district level. India still needs 6,000-7,000 automatic weather stations and 25,000-35,000 rain gauges to have representative weather data. So we do not work as a competitor to the IMD, but we complement them.” The IMD is a government organization that provides weather data for free. This means that it does not provide weather data as per the client’s requirement. Some sectors, such as power, insurance, etc need more specific and accurate weather data, which is updated at regular intervals, before taking decisions that have a direct impact on their costs. Therefore, the private players who have identified an opportunity area are providing weather information as a product to these industries. As

this data is provided at a cost, this also means greater accountability on the part of these private players. Another issue is that the IMD does district level forecast, whereas private companies like the WRL provide micro-level agricultural forecast up to the block level.

Yogesh Patil Assistant Manager, Crop & Weather Intelligence Group, NCMSL

Business functions There are only a handful of private players catering to distinct sectors. Therefore, a plethora of opportunities remain untapped. The existent companies currently provide weather data or weather consulting. These payers function differently, depending on the requirements of the end-user. For example, Jatin Singh of Delhibased Skymet, which was launched in 2003, says, “We basically collect weather data either available freely on the Internet or buy them from agencies, and process it using software created by us. We have four verticals—one we work with the media and provide forecast to TV channels and newspapers; we work with power companies—we have also created a load forecasting software; we work with shipping companies like ONGC; and we also do a significant amount of work in the telecom sector.” The company has 44 people on its payroll, including several meteorologists, programmers and graphic designers who do the packaging. NCMSL specializes in setting up automatic weather stations to provide weather data. The company claims to have set up nearly 478 private weather stations across 16 states. According to Yogesh Patil, “Currently we provide real-time weather data and crop-based analysis. We analyze the actual crop health status with real-time data and satellite pictures.” The company’s customer profile includes companies in insurance, commodity, energy, construction and transport. The company has employed approximately 30 people located across 16 states to monitor weather, including field engineers and meteorologists. The company had a turnover of around Rs 2.5 crore in the weather business last year. Kanpur-based Weather Risk Management Services mostly caters to the

IMD has around 525 automatic stations at the district level. India still needs 6,000-7,000 automatic weather stations and 25,000-35,000 rain gauges to have representative data. So we do not compete with the IMD, but complement them. weather insurance sector. According to Ajay Khumbat, “We are focused in our approach. We do not place weather stations across the country, but in agri-zones like some districts in Tamil Nadu, Andhra Pradesh, Punjab, West Bengal etc, according to the client’s needs. We install weather stations and provide weather data and weather forecast. The idea is to integrate both data from satellites-based forecasting as well as data from the weather stations. This database is used to generate a good forecast. This process needs a timeframe of three to five years to be able to generate good data and forecast. Plus, you need to have good IT support, which is very fundamental. On the whole, you need to have a very long-term view and stay invested. ” Accuracy of weather data is one important factor, and the error margin depends on the industry the data is required for. For example, the weather data required by the power industry is very precise. The temperature has to be within ± 1 degree of the actual value. On the other hand, for agriculture, a forecast stating that it would be very hot or rainy would be enough. For players in the sector, accuracy depends on a number of issues. Explains Ajay, “Accuracy depends on a number of things like the place, tools used for forecast, kind of forecast you are generating etc. SEPTEMBER 2009 61

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opportunity/environment

INDUSTRY LANSCAPE Player Name

Skymet

NCMSL

WRMS

Year of launch

2003

2005

2004

What they do

Collect weather data from various sources and process it

Install weather stations and provide weather data

Install weather stations and provide weather data and weather forecasts

Sectors served

Mainly media, power, telecom and shipping

Insurance, commodity exchanges, energy companies, construction and transport

Media, FMCG and insurance

Performance in 2008

~ Rs 1.8 crore revenue

Weather business had a turnover of Rs 2.5 crore

Rs 85 lakh turnover

For example, it would be easy to forecast whether it would rain tomorrow or not, but it will be more difficult to forecast whether it would be a light rainfall, moderate rainfall or heavy rainfall.” The pricing of the products depends on the kind of information the client wants. For example, WRL has come up with a product, a prepaid scratch card, for farmers that costs as little as Rs 150. Anuj explains, “Similarly, if you need high-end products with real-time weather monitoring and an update every half-an-hour, then the cost is going to be around Rs 4000-5000 per month per station.” Moreover, depending on the industry, a penalty may also be im-

Jatin Singh Managing Director, Skymet

The amount of power a power company needs or a city needs depends on the temperature. There are very strict parameters. For example, the temperature has to be ± 1° and the relative humidity has to be within 5% of the actual value. We get paid for what we get correct, which means we get penalized for the wrong value. 62

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posed for incorrect data. For example, the power trading industry requires precision forecasting and may penalize for incorrect data.

Target customers Power companies: The power trading market is entirely dependent on weather as the amount of power a company needs or a city needs depends on the climate. These companies, therefore, need accurate weather data to purchase power in advance. According to Ajey Maharaj, a spokesperson of the NDPL, “In case of an emergency purchase, the power per unit can go up to Rs 10-12 per unit. Therefore, advance information of weather helps to avoid such circumstances and save costs.” According to Jatin Singh, “We provide a very specific weather forecast, which is frequently updated in 15 minutes. There are very strict parameters for the power industry. For example, the temperature has to be within 1 degree of the actual value, the relative humidity has to be within 5% of the actual value.” Weather insurance: Weather insurance is basically an insurance product where the failure depends on some weather parameters. For example, if the rainfall is above or below a particular limit say 120 mm in the monsoon months and the crop for which the insurance is structured out for is affected, then the farmer is paid for the loss. Telecom companies: This is a relatively new trend. Explains Jatin Singh, “Telecom companies are now selling weather forecast to farmers. The problem faced by farmers is that they do not have reliable data from the IMD. So tel-

ecom companies buy data from us and sell it to the farmers.” Media companies: This is an obvious sector. Media companies, be it electronic or print, are now buying weather data from private players due to the accuracy and convenience factor. Commodity trading: Needless to say, commodity markets are predominantly dependent on weather. This is also turning out to be a huge opportunity area for private weather players. FMCG: FMCG players such as soft drink companies need weather data to plan according to the demand. For example, WRL provides weather data to Pepsi. which helps the soft drink giant to gear up for the demand accordingly. Armed with the data, these companies are not only able to plan in advance, but also to save costs. Besides, these, there are several other sectors that could be potential clients. According to Anuj, “I think there is a lot of opportunity in the travel business. The retail sector could also become a major consumer for managing their cold storage chain. A long-term temperature forecast could also be beneficial for FMCG companies.” Another potential sector is construction. According to Jatin, “I think the construction sector can use this data effectively, especially in a city like Mumbai. Most of the construction work in India stops during the monsoons. A weather company can tell them during which part of the month there will be less rainfall so they can keep aside their stocks and do construction more effectively during monsoons. This will help DAR E them save costs.”

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bio/investor

ow important is the role of intermediaries for an entrepreneur in reaching out to investors? Mentors/Intermediaries are really important. In fact, we are more of mentors/intermediaries than large investors. We began that way. We are a group of entrepreneurs who each contributes in small sizes to the fund to refine the companyâ&#x20AC;&#x2122;s business model and help it achieve critical scale for rapid expansion. The venture can then raise later round for scaling up by acquiring other players or activities that would help increase the user base. How many investments has your firm made so far? How old is the fund, and what is its size? We have done 4 investments so far. Initially, we started as a Incubation/start up fund; however, now we are going into early stage/growth capital and real estate fi-

investor of the month nance domain. We are about 2 year old now. Our initial investment pool size was $2 million of which we are all invested. We are in process of fetching another $50 million for early/later stage technology fund and $75-100 million of India Emerging Real Estate Fund. What is your investment strategy? For technology, our focus is companies playing in significant global industry market size with â&#x20AC;&#x153;software as a serviceâ&#x20AC;? model. For the Emerging real Estate fund, our strategy is investing into emerging rural areas where land rates are from $5 to $20 per sq ft.

Atul Khekade Chairman, Netz Capital

Netz Capital is a VC fund and advisory focused on nurturing start-ups and emerging companies. Atul Khekade is also a co-founder and CEO of Airnetz Charter and Airnetz Aviation.

How has your investment strategy changed given the slowdown? The strategy is to make small investments and go aggressively towards capturing market share. Business activity in a lot of areas in the market has slowed down which has kept competition literally non-existent. For exponential growth, this is the best time as one can capture market share far more rapidly than other players. What is the minimum ticket size of your investment? For technology, we can go as small as $50,000 and upwards of $3-5 million. What kinds of returns do you look at? Our target is fetching minimum 300% returns within DAR E a four-year horizon. SEPTEMBER 2009 63

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opportunity/manufacturing

The Business of Vending Machines Urban lifestyle, changing consumer behavior and economic growth have bolstered the market for vending machines /Manu Gupta

SEPTEMBER 2009

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opportunity/manufacturing

ending machine dispenses a product or a service, and it is a fairly new concept in India. Economic growth, development of cities, lifestyle and eating & drinking habits have opened a huge market for these machines which can cater to consumers directly. There exists a high potential for growth, both in sales of these machines and goods & services sold through these machines. Both goods and services can be sold through vending machines. Goods include pre-packed beverages, snacks, newspapers etc. Services include bill payments, recharge cards like mobile talk-time recharges, tickets and so on. There are different kinds of vending machines for different purposes. Some type of vending machines include machines for snacks and beverages (packed foods), hot beverages (tea and coffee), magazines and newspapers, tickets and machines for services like recharges etc.

The market Sales of goods and services through vending machines are pegged to be worth $1 billion by 2012. According to Pulin Dani of Plus Beverages, a vending machine manufacturer, approximately 12-15% of the potential market for vending machines has been tapped in India till now. So, a huge market is still untapped. Estimates suggest that globally, the industry mix of prod-

Quick Facts Fairly new industry in India Projected to be a $1 billion industry by 2012 Changing lifestyle, technology, consumer behavior expected to influence business significantly Only 15% of the market captured till date Machines available on rent too Business point could be supported by just operating 4-5 machines.

Growth Drivers of the Industry Changing lifestyles, eating and drinking habits Consumerism due to increasing incomes (economic growth) Upcoming urban centers and corporate culture Technology (making vending easy and convenient) Fairly new industry. Large part of market still untapped. ucts sold through vending is 40% for canned beverages, 19% for snacks, 8% for hot beverages and 33% for other products. However, vending of services is a fairly new concept and is expected that the share of services would increase considerably in the coming years. As of now, hot beveragesâ&#x20AC;&#x2122; vending machines for tea and coffee has the substantial share in sales of machines in India. These machines are mostly found in offices, shopping-malls and restaurants. However, sales of snacks and beverages machine are picking up and have a huge potential. Potential locations where these machines are installed are train-stations, airports, universities, shopping-malls, offices, hospitals, hotels, fuel-pumps etc.

features. A typical, small, basic snack & beverage vending machine costs around Rs 40,000 in India on the lower side. A hot beverage machine costs around Rs 10,000 on the lower side. These machines are also available on rent. In this business model, monthly operation charges are paid to the owner of the machines whereby the owners provide the machine and services such as maintenance or as agreed in the contract. The vending operators (those who install and run vending machines) decide and arrange for the location and pay electricity bills and space rentals. Generally itâ&#x20AC;&#x2122;s the vending operator that decides on the products to be sold through vending machines. Monthly operational charges for a typical snack and beverage machine is around Rs 7,500. According to Pulin, most of the machines are on rent in the market and are very often owned by the operators.

The Business Manufacturing of vending machines is just like any other manufacturing activity. Most of the components required to manufacture or assemble a machine are available in India. However, some sophisticated components and systems like currency recognition system are imported. In India, there are no regulations as such regarding manufacturing vending machines. However electrical equipment norms regarding machines needs to be followed. The cost of a vending machine depends upon its size, sophistication, payment system and other special

New vending machines available in the market have the option to accept currency (both notes and coins), give the change back in terms of notes and coins, accept payments through cash cards etc â&#x20AC;&#x201D; S Choudhary Vice President (Sales), E Cube India Solutions

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opportunity/manufacturing

According to a study by the National Automatic Merchandising Association (NAMA), scale of operation does affect the profitability of the operators. However, according to Pulin, businesses can be operated with just 4-5 machines and still be profitable in India. Main revenues of the vending operator come from the sales of products through these machines. However, other options like advertising seem to have a substantial scope. Advertisements could be done both by displaying products in the front-glass machines or by putting ads on the machine itself.

Challenges In India, conventional vending business models and machines have not done well. Major reasons are consumer habits, non-availability of machines suitable for Indian conditions and the availability of cheap labor. People are yet not very comfortable using these machines because of complications, trust and other factors. Also, currency recognition and especially of notes has

Overcoming challenges

The exciting aspect in India about vending is that India does not have a long history of vending. There are no pre-conceptions in India about what is vended. So a lot more different products could be vended through vending machines â&#x20AC;&#x201D; Gary Partridge International Sales Director, Seaga

12-15% Approximately l market a of the potenti chines a for vending m tapped till has only been o, a huge S now in India. untapped market is still

i â&#x20AC;&#x201D; Pulin Dans e

Plus Beverag

SEPTEMBER 2009

been an issue as prices of products is generally such that payments through coins is not convenient. Instances of vandalism and rough use have also been an issue and has deterred installers/operators from making investments in these machines. Machines often break down because of dust, heat etc. Furthermore, availability of cheap labor has come in the way of popularity of vending through machines. One of the major reasons for vending is to bring down the labor cost and especially when labor cost is the major chunk of cost. But in India this advantage has not accrued to vending businesses till date. Other areas that need to be taken care of is keeping machines well stocked, goods should be quality products, quick repairing in case of breakdown, keeping machines clean etc.

There is a huge scope for machines that are designed and that can be designed addressing the issues faced by old vending machines in India. Currency recognition is a major step to solve the payment problem. Other payment modes such as through mobiles, credit cards also seem feasible. According to S Choudhary, Vice President (Sales), E Cube India Solutions, new vending machines available in the market have the option to accept currency (both notes and coins), give the change back in terms of notes and coins, accept payments through cash cards etc. Also, these machines are being tried to be put on networks whereby information is easily available and thereby increasing efficiency. However, according to Gary Partridge, International Sales Director, Seaga, a vending machine manufacturer, real time networking (telemetry) is an interesting concept but in India it is costly. The information provided would unlikely help to reduce cost and only minimally increase efficiency at this stage of the industry development. Other measures like installing machines in safe places like metro stations, hotels etc., where no explicit security is required for these machines, could be a good way out. Changing habits and lifestyle are likely to give a big boost to this industry. Vending is a fairly new concept in India. According to Gary, the exciting aspect in India about vending is that India does not have a long history of vending. There are no pre-conceptions in India about what is vended. So, a lot more different products could be vended through vending machines. Also, the impact of slowdown on vending business has not been significant. Industry estimates suggest that the industry will experience substantial growth and will lay down opportunity open both for vending machine manufacturers and operators. According to Choudhary, still major part of the market is untapped. Demand for these machines is growing day by day due to advantages like making products available 24*7, not being dependent on anyone or manpower DAR E and various other advantages.

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blogs/opinion

Social Currency of an Entrepreneur /Anurag Batra

am sure you have heard many times that influence can be bigger than money.

Why do artists, media, entertain-

ers, journalists and other professionals from liberal arts have disproportionate influence over our minds and life? When I say this, what I mean is it being disproportionate to their money and business valuations vis-à-vis big business barons. I never believed that one would be in the media business for clout. In fact, I believe that it does not work like that and the failure of many who tried making media a support business to their mainline business strengthens my point.

Recently, I was having lunch with

go out every evening and socialize. His

a communication entrepreneur in

magazine was his passport, his social

Mumbai who shifted to Mumbai from

currency to his evening outings.

Delhi ten years back. We were talking

The second entrepreneur is in the

of two prominent magazine publish-

lifestyle media space and is a film afi-

ers in the city of Mumbai and how they

cionado and a well-known socialite in

would be better off selling their busi-

Mumbai and gets pecks on his cheeks

nesses (publishing/media). My friend

from the wives of all the top industri-

told me that unless they get dispro-

alists. His magazines and their tradi-

portionate value for their enterprises,

tional superiority or nuisance value

they will never sell as the money they

kept this entrepreneur’s social cur-

would get from the sale of their busi-

rency going.

nesses would not be proportionate to

Initially, I found this argument and

the value and enjoyment they get by

logic little too frivolous and trivializ-

owning these businesses. We reached

ing a very serious issue of owning your

the conclusion that the enterprise val-

business being akin to having a child

ue that they would get would always

and hence the difficulty in letting go

be substantially lower than the “social

of the business.

currency” they enjoy. It was pretty

Having been educated by fellow

amusing to me to look at a business

entrepreneurs, I now realize the role

enterprise and entrepreneurship from

social currency plays in the life of an

the prism of social currency.

entrepreneur. The happy situation for

The argument for social currency

an entrepreneur is one where the en-

was that in one case the business mag-

trepreneur can translate his or her so-

azine owner was single and needed to

cial currency into a business valuation and get monetary gains for himself.

I am a media entrepreneur and I am in it as it’s my primary business and my passion for it leads to become my identity. Now, here is the catch. The moment I say identity—the business that an entrepreneur is in assumes more significance than the size of it or the money it makes. I have always believed that influence or clout in a media business is like a savings bank account; the more you use it, the less you are left with.

The happy situation for an entrepreneur is one where the entrepreneur can translate his or her social currency into a business valuation and get monetary gains for himself.

In terms of valuations, when entrepreneurs buy out or invest in entrepreneurs, they must create mechanisms for keeping intact or enhancing social currency of entrepreneurs they are investing in. I hope I can.

DAR E

Anurag Batra is real life, ﬁrst-generation entrepreneur who is Much Below Average (MBA) from the prestigious Management Development Institute, MDI. When he is not busy writing such columns, he can be reached at anuragbatrayo@gmail.com. Anurag is the founder and editor-in-chief of exchange4media group which includes exchange4media.com.

SEPTEMBER 2009 67

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/sectors

businesses that are illegal in India

A list of businesses that are punishable offenses /Aswathi Muralidharan 70

SEPTEMBER 2009

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/sectors

ometimes, knowingly or unknowingly, entrepreneurs may tend to cross the thin line between businesses that are legal and those that are illegal. Here is the list of some businesses that are criminal offenses and can attract penalty in the form of imprisonment and/or fine.

1Wildlife Trading

The issue of illegal wildlife trading is now gaining traction, thanks to increasing awareness and innovative efforts by organizations such as the PETA. In India, products that are mostly traded illegally include body parts of tigers and leopards, ivory form rhino and elephant horns, snake skins, feathers, turtles – the list is long. Unfortunately, these killings are leading to the extinc-

tion of many species. The Wildlife Protection Act, 1972, defines wildlife as any animal, bees butterflies, crustacean, fish and moths, and aquatic or land vegetation which forms part of any habitat. The Act hence provides protection to a number of listed species of flora and fauna and also establishes a network of ecologically-important protected area such as sanctuaries, zoos, etc. Under the Act, the punishment awarded for offense against the listed animals is up to six years, but not less than a year and also with fine of not less than Rs 5,000. If the person is found guilty under the Prohibition of Trade or Commerce in Trophies, Animal Articles, etc. derived from Certain Animals (Chapter VA under the Act), he can be imprisoned for a maximum of seven years but not less than a year and Rs 5,000 in fine.

2Software Piracy

Some offenses under the Wildlife (Protection) Act, 1972 Picking, uprooting, transport etc. of specified plants Dealings in trophy and animal articles without license Purchase of animals without a license SOURCE: http://fiuindia.gov.in/schedule-wildlife.htm

Software piracy is one issue affecting many countries severely. According to the sixth annual BSA-IDC global software report published in May 2009, software companies lost a whopping $53 billion in 2008 due to piracy. The list was topped by United States with $9,143 million in losses, China with $6,677 million in losses and Russia with a loss of $4,215 million. India came in fourth with a loss of $2,768 million. The government of India is taking several measures for tackling this issue. In India, software piracy is governed under the Indian Copyright Act, 1957. According to the Act, it is illegal to make or distribute copyrighted software without the prior permission of the author. A copyright infringement can be considered as both a criminal or a civil offense. The offender can be punished either up to 3 years in

Knowingly using an infringed software can attract a term of upto three years and a ﬁne or upto Rs 2 lakhs

prison and a fine of Rs 2 lakh, under Section 63 of the Act. Moreover, under the recently added Section 63-B of the Act, knowingly using an infringed software can attract a term of a maximum of three years and a fine between Rs 50,000-Rs 2 lakh. Under Section 64 of the Act, any police officer (not below the rank of sub-inspector) can seize the copies of the software and the plates used for making the copies without a warrant and produce them before the magistrate.

3Prostitution

Prostitution is one of the world’s oldest trades. There have been several debates on its legalization in India because due to its illegal status women who have entered this trade find it very hard to report abuse, which is very common. According to an estimate, there are around 2.8 million prostitutes in the country. There are three Acts that govern this trade, Suppression of Immoral Traffic in Women and Girl Act -1956, Prevention of Immoral Traffic Act-1956 and the Immoral Traffic (Prevention) Act1956. The article mentions that, “The Immoral Trafficking Prevention Act, 1956 (“ITPA”), the main statute dealing with sex-work in India, does not criminalize prostitution or prostitutes per se, but mostly punishes acts by third parties facilitating prostitution like brothel keeping, living off earnings SEPTEMBER 2009 71

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/sectors

Some Offenses and Penalty under the NDPS Act Cultivation of opium, cannabis or coca plants without license.

Rigorous imprisonment - Up to 10 years + fine up to Rs 1 lakh.

Embezzlement of opium by licensed farmer.

Rigorous imprisonment - 10 to 20 years + fine Rs. 1 to 2 lakh (regardless of the quantity).

Production, manufacture, possession, sale, purchase, transport, import interstate, export inter-state or use of narcotic drugs and psychotropic substances. And Import, export or transshipment of narcotic drugs and psychotropic substances.

Small quantity - Rigorous imprisonment up to 6 months or fine up to Rs. 10,000 or both More than small quantity but less than commercial quantity - Rigorous imprisonment. up to 10 years + fine up to Rs. 1 Lakh Commercial quantity - Rigorous imprisonment 10 to 20 years + fine Rs. 1 to 2 lakh.

External dealings in NDPS i.e. engaging in or controlling trade whereby drugs are obtained from outside India and supplied to a person outside India.

Rigorous imprisonment 10 to 20 years + fine of Rs. 1 to 2 lakh (Regardless of the quantity).

Financing traffic and harboring offenders

R.I. 10 to 20 years + fine Rs. 1 to 2 lakh

Repeat offense

One and half times the punishment for the offense. Death penalty in some cases.

SOURCE: http://dor.gov.in/writereaddata/narcotics/punishment_offences.html

and procuring, even where sex-work is not coerced.” If a person is found guilty of assisting or managing prostitution, he can be jailed for a term of not less than one year and not more than three years. It also attracts a fine of up to Rs 2,000. In case of second or subsequent convictions, the punishment increases with a rigorous imprisonment of not less than two years and not more than five years. He may also be fined up to Rs 2,000. If a person is found guilty of forcing a person to carry on as a prostitute, he can be punished with a term ranging from three years to seven years and also a fine of Rs 2,000. For second or subsequent conviction, the punishment can go up to a term of fourteen years.

personal consumption, sale, distribution, etc. The offenses and the penalties for the same are described under Chapter IV of the Narcotic Drugs and Psychotropic Substances Act (NDPS), 1985. If a person violates the Act by cultivating, distributing, selling, and

importing narcotic drugs and psychotropic substances, he can be tried under the special courts. The crime attracts imprisonment of 10 to 20 years for the first offense, 15-30 years for subsequent offense with a fine. In addition to this, if a person is involved directly in the trafficking of narcotic drugs and is a party to the crime, he too is liable to be prosecuted. However, if a person possesses drugs for personal consumption, the punishment can be limited from between six months to a year.

5Trade in Arms and Ammunition

Illegal trade in arms and ammunition is described under the Indian Arms Act 1959. Under the Act, there are several clauses that define the offenses. Some of the most common offenses are – one, a person cannot keep an unlicensed firearm; two, he cannot manufacture, sell, transfer, convert, repair, test, offer for sale or transfer a firearm; three, he cannot shorten the barrel of a firearm or convert an imitation firearm into a firearm and four, sell or transfer a firearm which does not bear the name of the maker, manufacturer’s number or other identification mark stamped. People found guilty under these offenses can be jailed or fined, or in some cases both.

4Narcotics

Dealing in narcotics is a serious criminal offense that can even attract death penalty under certain cases. The quantum of the offense depends on two cases: one the quantity of the drug and the purpose such as 72

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Under the Indian Arms Act 1959, some offenses even attract an imprisonment for life

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/sectors

of any monetary gains. This holds true for donors as well. Moreover, the procedure of transplantation should be conducted only in hospitals authorized to do so. The transplant should be with willful consent of the donor and should not pose any kind of dangers. The punishment for such a crime is imprisonment of up to 5 years and fine up to Rs 10,000 or both. Those who indulge in commercial trading of organs faces a penalty of 2-7 years imprisonment and and a fine of Rs 10,000-Rs 20,000. Moreover, the Medical Council also takes action against the doctor involved in such cases. Only a registered medical practitioner can transplant human organs without any monetary gains, neither to the doctor nor to the donor

Did you know that the 2001 census puts the number of beggars in India at approximately 6 lakhs?

6Begging

Ocassionally, when one comes across stories of how beggers have earned several lakhs just by begging, it brings a curious smile to our faces. But did you know that begging is considered a crime? Well, if you are in Delhi and are held for giving alms at traffic signals you could be fined Rs 1,000, under the Motor Vehicals Act. Despite the strict measure, one reason why begging is still thriving is because of poverty and unemployment and two beacuse of a lack of a central Act that governs begging. For example, Delhi borrows its begging law from the Bombay Prevention of Begging Act, 1959. According to this law, begging, vending on roads, cleaning vehicles at traffic junctions, singing in buses and displaying disability for alms are all unlawful. A police officer or any authorised person in this regard has the right to arrest such a person.

7Hawala Transaction

Hawala transaction is a process in which large amount of black money is converted into white. The money is also used for illegal purposes such as terrorism. In India, the Prevention of Money Laundering Act, 2002 is defined as â&#x20AC;&#x153;an Act to prevent money-laundering and provide for confiscation of property derived from, or involved in, money-

laundering and for matters connected therewith or incidental thereto.â&#x20AC;? The schedule to the Act is divided into two parts. While the Part A lists offenses such as waging of war against the Indian government (Sections 121 and 121A of Indian Penal Code) and some offenses under the NDPS Act, 1985, offenses under Part B is subjected to a monetary limit of Rs. 3 million or more. People found guilty under the Act can be sentenced to a rigorous imprisonment for a period of 3-7 years and also a fine of up to Rs 5 lakh.

8Trading in Human organs

Illegal human organs trade racket operates simultaneously with the legal channel for organ donations. The problem is that the demand for organs in India is very high and the supply too little due to socio-cultural reasons. Despite strict regulations, this has become an easy way out for middlemen, donors and some doctors to make quick money by either duping people of their organs or buying organs from the poor illegally by promising them money or jobs. As per the law, any transplant that is not done in accordance to the Transplantation of Human Organs Act, 1994 is illegal. According to the Act, only a registered medical professional can transplant organs without the motive

9Dealing in Child Labor

Child labor has been a persistent problem in India for decades. Despite several measures by the government, this problem has refused to die down because the problem of child labor is intertwined with other serious issues such as poverty, unemployment, lack of education, and so on. According to the law, a child is a person below 14 years of age. In 1979, the government had set up the Gurupadswamy Committee, which observed that as long as poverty continued, it would be difficult to completely uproot child labor. Based on the recommendations made by the committee, the Child Labor (Prohibition & Regulation) Act was enacted in 1986. According to the Act, employment of children in certain hazardous SEPTEMBER 2009 73

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Employing children under 14 as domestic servants, in roadside eateries, restaurants, hotels, motels, teashops, etc is a crime occupations is illegal. Other Acts in India such as the the Mines Act, 1952, the Plantation labor Act and the Merchant Shipping Act, 1958 also prohibits child labor under a certain age.

Pornography

Though surprisingly the term pornography is not defined in any

/sectors statutes in India, the term obscenity finds reference in two legislation – The Indian Penal Code, 1860 (‘IPC’) and The Information Technology Act, 2000 (‘IT Act’). According to the IT Act, publishing or transmitting material which is “lascivious or appeals to the prurient interest” in the electronic form is an offense. The offense attracts punishment of a term up to five years and a fine of Rs 1 lakh. In case of subsequent conviction, the imprisonment may be up to ten years with a fine of up to Rs 2 lakh. According to the IPC 1860, sale of obscene objects to young persons under the age of twenty is a crime that can attract a penalty of an imprisonment for up to three years and a fine of up to Rs 2,000. In case of subsequent convictions, the imprisonment may extend up to seven years with a fine of up to Rs 5,000. This statute also declares a book, pamphlet, paper, writing, drawing, painting representation, figure or any other object also “obscene”, if it is explicit.

11Gambling

Public gambling is a crime in India under the Public Gambling Act 1867. The Supreme Court in a judgment laid down a general test for determining what is considered gambling. It says, “That a competition in order to

avoid the stigma of gambling must depend to a substantial degree upon the exercise of skill. Therefore, a competition success where it does not depend to a substantial degree upon the exercise of skill is now recognized to be of gambling nature”. This means a competition without a certain degree of skill testing is considered a gambling. According to the Public Gambling Act of 1867, there is a penalty for “owning or keeping or having charge of a gaming house.” That means, a person who is the owner, occupier or having charge of the ‘common gaming house’ is liable to a fine not exceeding Rs. two hundred or a term of up to three months as defined in the IPC 45 of 1860.

Who should apply for license for playing commercial music? Restaurants

Amusement parks

Art galleries

Banks

Banquet halls

Bars

Beauty parlors

Bowling alleys

Buses

Cafes

Casinos

Clubs

Dance centers

Discotheques

Exercise classes

Exhibitions

Factories

Events

Guest houses

Hospitals

Hotels

Museums

Pubs

Shops

SOURCE: www.pplindia.org/

* The list is indicative and not exhaustive

12Playing music in public

A competition is not considered gambling if it exercises a certain degree of skills

SEPTEMBER 2009

Did you know that playing commercial music in public places without paying the license fee is illegal? According to the Indian Copyright Act, any broadcast or performance of copyrighted music without having a license from Phonographic Performance Ltd (PPL), the apex-licensing arm of the Indian Music Industry (IMI), is considered an infringement. Any person held guilty of the crime, which is non-cognizable and non-bailable, can be penalized for a term of three years DAR E and a fine of up to two lakh.

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The basics of credit rating

essentials/credit rating

efore the IPO, the rating of the IPO is mandatory. Other than that, are there any other ratings that are mandatory for the company? There are several kinds of ratings. IPO rating is a very small part of the business. First of all, any borrowing programs for bonds and debentures, which is for public issue has to be compulsorily rated. Company, of course, is rated. But the debenture issue, bond issue, public issue and not the private placements have to be rated compulsorily. All debentures and bonds that are placed in the market for public issue or if it is already listed, have to be rated compulsorily. All commercial papers have to be rated compulsorily. Then mutual funds, as part of the prudential norms, their instruments have to be rated. As per BASEL 2 norms, which the central bank has now stipulated, all companies, both with limit of fund based, non-fund based all taken together from the banking system as a whole, exceeding Rs 5 crore have to be rated. When you say rating, what exactly does it mean? Itâ&#x20AC;&#x2122;s more on debt servicing capability. It is just financial. A person is borrowing an amount. It is just that, with what degree of certainty can he/she pay it back . It measures the probability of default. And everybody can default. There are circumstances beyond everybodyâ&#x20AC;&#x2122;s control and they can ultimately default. But the probability of default can be high or low. So, basically, it measures risk. If somebody is investing or lending money, how risky it is to invest or to lend to that company? If somebody is AAA, that is highest ranking, then even that (AAA) can default but only in the extreme adverse circumstances. So, it is degree of measuring probability of default.

P K Choudhury

Vice-Chairman and Group CEO, ICRA 76

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Is it possible that a company could get rated differently by different rating agencies? Yes. This is because rating is both objective and subjective assessment. For example, management quality is a matter of perception but not neces-

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essentials/credit rating sarily it is identical for two different rating agencies. There could be differences. There are other issues which are subjective issues. For example, the future prospect of the industry. Let us say, steel industry. Different agencies can have different perspective on steel industry. Some may be having the conservative view of the steel industry and some may be having the liberal view of the industry. Or exports-oriented companies, for example. Somebody may think that the prospects of export destination, that is where the company is exporting may go up and somebody may have the view that it is going to stagnate. So there are subjective issues involved. There are marginal differences here and there. This usually do not go beyond one notch. If somebody gives B+ in one case then it can be BBB in other case. If somebody gives A+ in one case then it can be AAA in other case. So one notch, up and down, does happen. How do small businesses decide on which rating agency to choose? There are three issues. One is the reputation. Second is the process. Check up with them that how long does it take, what all processes are there. So if it very rigorous and proper process then it will be more reliable sort of ratings. Take into consideration all the positive and negative facts into much detail. Third is the vicinity factor for small companies. If the office is nearby to rating agency, then it is an advantage. Once the rating is done, do I need to renew it or re-rate it? It is subject to subject. If you have borrowed from the market for five years, for entire five year period, you will be constantly under surveillance. We will keep the watch on the company, any change in the circumstances will be reported. Also, one is under surveillance till the amount is offset. How much does it cost to get rated? Normally, it is the percentage of the size of the borrowing. The percentage is 0.01% with a minimum and a maximum limit on fees. So for 5 crore,

I think it is Rs 75,000. For subsequent monitoring those are lower. These can be annual payments. What should I be aware of to get a good rating? There is no such thing as good rating. There is fair rating and not fair rating. It will be a fair on your business and what you are operating in. That are you efficient enough or not. A good business, a good management, good finance, good governance matter. Other than financial instruments what all get rated? We have started something called corporate governance rating, which has nothing to do with financial performance. We have another service called corporate governance – stakeholder value and governance. There we test that is the company is creating enough value for all the stake holders and how equitable is the distribution and also the corporate governance. We have some other products – grading products. Which are more on performance side and not on financial side. For example, we grade construction entities on the basis of construction quality, what is their construction track record in the past and so on. Then we do gradings like of training schools. That how good or bad they are. Then we grade parallel marketers of LPG, kerosene that how good and bad they are. We grade health care sector, that is for hospitals. That how is the health care delivery system, how proper, how efficient they are. Also we test ethical standards because insurance companies might be interested in that. So we grade them on that. Coming back to the loan part of it, to get a better interest rate or to qualify for a loan, is there a need for rating? Ultimately, it may end-up in being that. What happens is banks are required to allocate certain capital. But for the purpose of capital allocation, earlier system was that 8.33% of entire lending is required to be allocated which has changed now. BASEL 2 says that, link it to the risk, give certain risk

weightage and risk weightage has to be based on ratings. So if you are AAA, your risk is lower, so capital allocation will be lower. If you are BBB, let us say, then the risk is much higher, so capital allocation will be much higher. So the linkage of risk or risk weightage with capital allocation is BASEL 2. So, as a result, higher you are rated, lower is the capital allocation by the bank. So, as a result, bank will get a capital release consequently on higher rating and bank will pass on that in terms of lower interest rate and not necessarily the value.

Suppose somebody gets a fair rating which is lower than what he has expected, that is non investment grade? Very large number get non-investment grade. Either they accept it and inform the bank or you don’t accept that. The fact is a fact. If you have failed in exam, study more and work harder. That’s the only solution. What are some of the major problems? Major problem we encounter in India is that the delay earlier was never taken seriously by businessmen in India. It should have been taken seriously. If a loan has to be repaid on 5th of March and you pay on 7th of March, then that is a 2 day delay. Banks generally doesn’t bother and accept that. But that’s a delay. So the rating goes down. And people are surprised with this act of downgrading. We want the culture of timely payments in the country. Most people get the non investment grade because of this culture. They don’t have the discipline. The credit discipline unfortunately was never taken seriously. Now consequently ratings get affected and businessmen knows. Also, no social considerations are taken into account. The fact is that you have delayed. How serious is a 2 day delay? This depends. You cannot measure like this minus1 or this minus2. There are other issues. Even that goes with the management culture. If the management speaks like that, then that DAR E itself is a negative point. SEPTEMBER 2009 77

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They’re ready. They’re willing to experiment and even fail. India’s newest entrepreneurs are realistic and practical—here is a takeaway from their experience in entrepreneurship programs on campus

hen Nag and Darshan barged into the National Entrepreneurship Network (NEN) office with 40 hot dogs, the NEN team was surprised. Not so much with their idea of starting a hot dog stand ‘Hungry Hogs’, but because, last heard, these 2009 passouts of Sir M. Visvesvaraya Institute of Technology, Bangalore, were in talks with the Department of Defence Research and Development (DRDO) to provide ready-to-fit surveillance accessories for their aerial vehicles. And weren’t these the same guys who were planning to produce customized car parts earlier? “Oh, we are still figuring out the government regulations around aerial surveillance accessories. And as for auto parts, we realized that our assumption was wrong—we

Next-Gen Entrepreneurs: No Back Benchers 78

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DARE.CO.IN didn’t know so many people were already doing similar things. So while we wait to get those business plans right, we thought of starting hot dog kiosks to raise some quick cash that we can use for our future startups,” they explain. Like Nag and Darshan, another bunch of recent graduates from SRM University, Chennai, are creating their action plan. NEN entrepreneurship cell (E-Cell) members Rajiv Ranjan, Anirban Chowdhary, Dipti Ranjan Biswal and Anindya Mukherjee were founders of the Robotics Club on their campus and upon graduating, they carried forward their passion. Their new company, Yogiki, runs robotics workshops for students. They operate out of the SRM incubator, free of cost. They have a zero marketing budget—they strategically use the NEN network to get in touch with other institutes. Till now, they have got responses from five NEN member institutes, including a promising lead from Indian Institute of Technology, Bombay, where they hope to run aero-modeling workshops for 200 teams during their Techfest early next year. “We are ambitious, but we are starting small and simple. We make the best of whatever resources we have,” says Ranjan, who is still in his final year of engineering.

Who needs the frills?

Darshan and Nag, founders of Hungry Hogs

Nag, Darshan, Ranjan and others, India’s next-generation entrepreneurs, are no back benchers. Angel investors? Not for now. Venture capital? Willing to wait. Recession in the market? So what! Right now, like Nag points out, all he needs is an interesting business idea and his dad as an investor. His belief: “We have just started to learn the ropes of running a business. Why invest so much when we know that we might fail?” Stories like Hungry Hogs and Yogiki are coming in from all across the country. This readiness to experiment and more importantly, to fail, can be tied to the fact that SEPTEMBER 2009 79

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Students of Bishop Cotton Women's Christian College produce envelopes for their E Store over 70,000 students engage in entrepreneurship programs within NEN today. Seven years ago, the number was less than 200. That’s a jump of 35,000 percent! The result? By experiencing entrepreneurship while in campus, through their E-Clubs and campus companies, these new and future entrepreneurs have learnt some key lessons: it’s better to cash in on what is available rather than wait for everything to fall in place; it’s better to let go of an approach that is not working; and that you should take your learning, your time and your energy and apply them to a new strategy. For example, four NEN E-Cell members of Indore-based Sanghvi Institute of Science and Management, recently started Sunrise Academy, a tutorial startup with an investment of Rs 20,000 from their own pockets. They have only four customers, but they don’t mind as long as they have some80

SEPTEMBER 2009

thing new to learn. “We don’t know how it will work out, but we will give it our best shot. If it doesn’t, we will do something new,” says Unnat Agarwal, one of the co-founders. Another Bangalore-based institute, Bishop Cotton Women’s Christian College runs an E-Store that sells a wide variety of things that the students produce themselves, from stationery to hair oil and chocolates. In the process, E-Cell member Komal Kalra discovered that there were more benefits in selling chocolates than eating them and this is how she founded ‘Byte of Relish’ that offers homemade chocolates at affordable prices. Today, her company brings in Rs 15,000 per month, and her college is her biggest client. “It was an E-Cell workshop on chocolatemaking that triggered the whole idea,” shares Komal. According to Laura Parkin, Executive Director, NEN, E-Cells give students a

hands-on experience in entrepreneurship through various activities like raising sponsorship, organizing events and networking and exposes them to essential frameworks of entrepreneurship. “You can’t learn how to sell from a text book. You can’t hear a lecture on cash flow and understand the true meaning of making or losing money. And there’s nothing like actually failing, to realize that it doesn’t kill you. The growing number of entrepreneurship programs and activities on campuses give young people a chance to be entrepreneurs within a safe environment. They come out changed—confident, bursting with ideas and with a solid grounding in skills and knowledge. I am not surprised to see them immediately apply their talents to launch their own ventures. I’m not surprised, but I am excited.” D A R E More articles on www.nenonline.org. Content provided by NEN

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blogs/opinion

The impact of drought T

/Paranjoy Guha Thakurta

To a greater or lesser extent, each one of us is guilty of profligacy in the use of water. Unfortunately, we don’t wake up to the grim reality until a drought stares at us in the face – as it has this year.

SEPTEMBER 2009

he specter of drought is hanging ominously over nearly half the total land area of India. There are indeed a few pockets that have received excess rainfall. But in much of the country, the monsoon has either failed or is extremely deficient. This is perhaps as good a time as any to realize that one of the biggest weaknesses of India’s development experience over the last six decades has been the collective inability of the people of this country to better manage our limited water resources. We have no one to point a finger at but ourselves. To a greater or lesser extent, each one of us is guilty of profligacy in the use of water. Unfortunately, we don’t wake up to the grim reality until a drought stares at us in the face – as it has this year. Meteorological maps on the progress of the monsoon, its spatial and temporal distribution, are regularly being carried in newspapers. Television channels are highlighting reports of the hardships that are being faced by millions of farmers across the length and breadth of India. Many believe the worse is yet to come and that even more acute water shortages would be experienced during the summer of 2010. There is growing realization that conflicts of the future would be based on access to water, in this country and elsewhere. Nobel Laureate Amartya Sen, who studied the Bengal famine of 1943 in detail, had pointed out that although an estimated three million people died in eastern India that year, there was no real shortage of rice. Yes indeed, the British colonial rulers of the time were callous and so were local traders who hoarded grain stocks in the expectation of high prices during the World War II. The point is simple: people died in the famine because they did not have the necessary purchasing power, the entitlement to

food. In other words, the problem historically and today has never been one of production but an issue concerning distribution and access to food. Prime Minister, Manmohan Singh, has said no Indian citizen will go hungry. A proposed National Food Security Bill is currently being drafted that envisages a strengthening of the public distribution system (PDS). The National Rural Employment Guarantee Act is being revamped and the minimum wage payable to unskilled laborers under the Act is already up to Rs 100 a day. Finance Minister Pranab Mukherjee has conceded that food output will fall because sowing is lower by a fifth. This year may not be as bad as 1987 which was described as a year that witnessed the “worst drought of the century”. That year, drinking water had to be transported across hundreds of kilometers on railway tankers. Nevertheless, what is worrying is that the drought appears to have been particularly severe is those parts of north-western India that are also agriculturally the most prosperous, namely, Punjab, Haryana and western Uttar Pradesh. A detailed study based on satellite imagery by the National Aeronautical and Space Administration (NASA) of the United States government that has just been published in the prestigious Nature journal has indicated an alarming fall in groundwater levels across northern India. Low levels of water in reservoirs would impact not just irrigation but hydro-electricity generation too. The wholesale price index is in negative territory but food prices are going through the roof, hurting the pockets of the poor the most. Exports of non-basmati rice and wheat have been banned as they had been last year. Still, a scam occurred in 2008 wherein non-basmati rice was

DARE.CO.IN

blogs/opinion exported to particular African countries ostensibly as humanitarian aid but actually benefited a corrupt few. The time is opportune to examine closely the structural deficiencies in agriculture in this country and address these as expeditiously as possible. Here are a few facts about Indian agriculture that are worth mulling over. The rate of growth of agricultural production picked up from nil in 2004-05 to 5.8 per cent in 2005-06, came down 3.8 per cent in 2006-07, went up to 4.5 per cent in 2007-08 and again declined 1.6 percent in 2008-09 – this was a period when the Indian economy grew by 9 per cent plus each year for the first time in the country’s history. The share of agriculture in India’s national income has come down from 50 per cent to below 20 per cent over the last four decades, but the share of the country’s population dependent on agriculture has declined a slower pace in this period from over 75 per

The time is opportune to examine closely the structural deficiencies in agriculture in this country and address these as expeditiously as possible. cent to around 60 per cent. Importantly, as much as 60 per cent of the total cropped area in India is not irrigated. Three-fourths of the total precipitation in India occurs during a four month period. Thus, the importance of water management can scarcely be underscored. There is evidence to indicate that our parents and their parents were able to manage the country’s water resources better than the present generation has been able to.

One should not then be surprised to learn that at least 10,000 farmers committed suicide each year between 1993 and 2003 due to their inability to repay loans. To use exact statistics compiled by the government, 16,632 farmers committed suicide in 2007 against 17,060 in 2006 – the five worst affected states are Maharashtra, Andhra Pradesh, Karnataka, Madhya Pradesh and Chhattisgarh. The government’s Rs 71,000-crore farm-loan waiver scheme has not helped small and marginal farmers who are indebted to local moneylenders We have to stop praying to Indra Bhagwan at this juncture and instead, get our act together. Each and every citizen of this country has a duty to conserve water and utilize it far more efficiently that we are doing DAR E at present. The author is an educator, an economic analyst and a journalist with over 30 years of experience in various media—print, radio, television, Internet and documentary cinema.

Website:

www.dare.co.in

w w / / : Email:

il B

p t t h

dare@cybermedia.co.in SMS: 56677 (SMS Instruction: Type 'DARE <comments, questions, suggestions'> and send it to 56677) SEPTEMBER 2009 83

Organizations DARE.CO.IN

covered in this issue, in alphabetic order; first appearance

Air India ..................................................................... 43

IITM ........................................................................... 68

Plus Beverages.......................................................... 65

Airbus ........................................................................ 44

Indian Air Force ........................................................ 15

Pranav Construction Systems ................................... 47

Airnetz Aviation.......................................................... 63

Indian Airlines ............................................................ 43

Pring00 ...................................................................... 59

Airnetz Charter .......................................................... 63

Indian Angel Network (IAN) ....................................... 29

Robotics Club ............................................................ 79

Alleway Info ............................................................... 33

Indian Institute of Technology .................................... 79

Amul .......................................................................... 21

Indian Meteorology Department ................................ 61

Apple ......................................................................... 41

Indian Music Industry ................................................ 74

Asia Pacific Incubation Network ................................ 25

Indigo ......................................................................... 43

Sanghvi Institute of Science and Management....................................................... 80

Athiaman ................................................................... 69

Infosys ....................................................................... 77

Satyam ..................................................................... 17

ATR ............................................................................ 44

Infotech Enterprises .................................................. 17

SBI ............................................................................. 68

Axis Holdings ............................................................. 47

Inkfruit ........................................................................ 59

Seaga ........................................................................ 66

Bharat Forge ............................................................ 17

InOutAds.................................................................... 33

Sikorsky Aircraft Corporation .................................... 16

Bishop Cotton Womenâ&#x20AC;&#x2122;s Christian College ................ 80

IRCTC........................................................................ 36

Sir M. Visvesvaraya Institute of Technology ............... 78

Boeing ..................................................................... 17

ISRO ......................................................................... 16

Boeing Company ....................................................... 42

Jet Airways ................................................................ 44

BSNL ......................................................................... 69

Kingfisher................................................................... 43

Byte of Relish ............................................................ 80

L& T .......................................................................... 17

Cleartrip ..................................................................... 32

Luna Ergonomics ...................................................... 33

Cornucopia Weekend Planners ................................. 32

Mac ............................................................................ 21

Daniel Power Systems............................................... 33

MDLR ........................................................................ 43

DARE ......................................................................... 29

Mechartes.................................................................. 33

Defense Offset Facilitation Agency .......................... 18

Microsoft .................................................................... 41

Delta .......................................................................... 69

Myntra........................................................................ 59

Department of Defence Research and Development ...................................................... 78

National Automatic Merchandising Association ......... 66

Tata ........................................................................... 17

National Collateral Management Services Limited ........................................................ 61

TCS .......................................................................... 17

DLTA Travels .............................................................. 32 E Cube India Solutions .............................................. 66

National Entrepreneurship Network........................... 78

Ferns N Petals ........................................................... 56

National Hydroelectric Power Corporation................. 52

Franchise India Holding ............................................. 57

Netz Capital .............................................................. 63

Go Air ........................................................................ 43

NIIT ............................................................................ 57

Godrej ........................................................................ 77

Nine Rivers Capital .................................................... 46

Google ....................................................................... 41

ONGC ........................................................................ 61

Gripen International, .................................................. 18

Paramount ................................................................. 43

HAL ........................................................................... 17

Pepsi India ................................................................. 21

Wipro ........................................................................ 17

IBM India ................................................................... 69

Phonographic Performance Ltd ................................. 74

World Bank ................................................................ 25

IDC India.................................................................... 69

Picsquare................................................................... 59

Yogiki ......................................................................... 79

SAFAL ....................................................................... 60 Samtel Display Systems ........................................... 17

Skymet....................................................................... 61 SMC Capitals............................................................. 52 SpiceJet ..................................................................... 43 Sprite ......................................................................... 20 SRM University .......................................................... 79 STPI........................................................................... 29 Sunrise Academy ...................................................... 80 Surya Food & Agro .................................................... 35 Swatch ....................................................................... 20

Tech Mahindra .......................................................... 17 The Delhi Metro ......................................................... 89 TiE ............................................................................. 29 TVS............................................................................ 29

SEPTEMBER 2009

Veda Corporate Advisors........................................... 52 Virgin ......................................................................... 21 Weather Risk Management Services Limited............ 60

People DARE.CO.IN

covered in this issue, in alphabetic order; first appearance

Abhijit Bhattacharjee.................................................................................................33 Amartya Sen.............................................................................................................82 Amod Ranade...........................................................................................................69 Anindya Mukherjee ..................................................................................................79 Anirban Chowdhary ..................................................................................................79 Anuj Kumbhat ...........................................................................................................61 Atul Khekade ............................................................................................................63 Ballabh Prasad Agarwal ...........................................................................................35 Deepak Sharma .......................................................................................................69 Dipti Ranjan Biswal ..................................................................................................79 Gary Partridge ..........................................................................................................66 Gopal Srinivasan ......................................................................................................29 Jatin Singh ................................................................................................................61

DARE is not an acronym. It represents the daring spirit of the entrepreneur.

Karisma Kapoor ........................................................................................................36 Komal Kalra ..............................................................................................................80 Krishna Kumar ..........................................................................................................29 Laura Parkin .............................................................................................................80 Manmohan Singh .....................................................................................................82 Mrutyunjay Mishra ....................................................................................................28 Navneet Rai ..............................................................................................................59 Noel Swain ...............................................................................................................32 P K Choudhury .........................................................................................................76 Parishesh Mishra ......................................................................................................69

The red color for the R of DARE represents the fire in the belly of the entrepreneur. You could think of the D representing the face, A representing the chest, R representing the belly and E representing the feet of the human body. Hence the red R.

Pranab Mukherjee ...................................................................................................82 Priya Tendulkar .........................................................................................................36 Pulin Dani .................................................................................................................65

The entrepreneur dares to do things. (S)he dares to do things differently

R Balaji Prasad .........................................................................................................69 R Govindarajan.........................................................................................................69 Rajiv Ranjan .............................................................................................................79 Ranjiv Ramchandani ................................................................................................59 Robin Roy .................................................................................................................69 S Choudhary ............................................................................................................66 S V Narayan..............................................................................................................68 Sandeep Daga..........................................................................................................46 Shekhar Agarwal ......................................................................................................35 T. Jagannadham .......................................................................................................52 Unnat Agarwal ..........................................................................................................80 Venkat Subramanyam ..............................................................................................52 Vijay Anand ..............................................................................................................68 Vikas Gutgutia ..........................................................................................................55 Yogesh Patil ..............................................................................................................61

SMS â&#x20AC;&#x153;DARE <your comments, questions or suggestions>â&#x20AC;? to

56677 dare@cybermedia.co.in SEPTEMBER 2009 87

DARE.CO.IN

opportunity/others

Come October 2010, Delhi will showcase itself to the world as it hosts the Commonwealth Games. Such extravaganzas usually mean big business. DARE takes a snapshot of whatâ&#x20AC;&#x2122;s in the offing and how you can get your share of the pie /Aman Malik

The Games Begin! 88

SEPTEMBER 2009

opportunity/others

1 2

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Infrastructure: The Opportunity: Games village and other permanent and impermanent structures; roads, over-bridges and underpasses; furnishings and fittings (interior and exteriors) Most contacts have already been awarded, but some sub-contacting is still on in select areas, and will perhaps

be on till the Games begin. Specialists like interior designers, furnishers, painters etc will have lots to cheer about.

Services The Opportunity: Public transport ( The Delhi Metro, buses, taxis, auto rickshaws, manual rickshaws); sanitation and cleanliness and general maintenance services; mobile and other telecom services (recharge cards etc); IT services (both in terms of the backbone as well as public access systems); security services (private security that

may be requisitioned by some countries); translation services; liaisoning; cargo and logistics; escort services The Delhi Metro is on schedule, barring a recent spate of accidents, which will however not delay its expansion plans by very much. The government has launched a drive to train taxi and auto-rickshaw drivers in etiquettes and impart in them some working knowledge of the english language.

3 4 5

Media The Opportunity: The media will have a field day covering the event in all its extravagance for its entire duration. Expect the Fourth Estate to leave no opportunity to attract eyeballs during the time the event would be staged in the capital. And they’d be rewarded for that with ad spots going for sky-high rates.

Medical and Emergency Services The Opportunity: Medical tourism, emergency services (first aid, trauma, ambulances) The capital is found wanting in this area. While the private hospitals would be up to the task, it remains to be seen how well-equipped the government ones are. Expect lots of medical tourists coming this side of the world.

Sports Gear The Opportunity: Primary purchases of sports utilities and also secondary purchases (spares, replacements); exercise facilities, gyms, swimming pools and other recreational facilities India is one of the leading exporters of sports equipment and most manufacturers should be on cue to face

whatever demand that is additionally generated by the games.

FMCG The Opportunity: FMCG goods across the board would be in short supply and manufacturers will have to shore up capacities to meet excess demand.

7 8

Travel and Tourism The Opportunity: Hotels; ‘bed and breakfasts’; restaurants; tourism agencies; tourist guides; food and beverage; roadside stalls; food courts While several big ticket projects coming up in the NCR region will augment the existing capacity, budget

travelers would also have numerous ‘bed & breakfast’ options to choose from.

Retail The Opportunity: Handicrafts and souvenirs; branded items; malls and multiplexes; hawkers Expect almost all Delhi markets to be swarmed by tourists looking for ethnic Indian handicrafts and souvenirs to take back home. Also expect a manifold increase in the footfalls in malls and multiplexes. Hawkers

too will make a killing.

DAR E

SEPTEMBER 2009 89

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SEPTEMBER 2009

TiE Delhi’s annual flagship event TiEcon Delhi 2009 is scheduled on September 18th & 19th, 2009 at Hotel Taj Palace, New Delhi. The theme of this year's conference is "Smart Entrepreneurship in Challenging Times". As one of the largest congregations of successful entrepreneurs, investors, industry leaders & other key stakeholders of the entrepreneurial ecosystem, TiEcon Delhi 2009 will be the forum for smart entrepreneurs to connect. Are you attending? 18th SEP.

DAY 1

• Inaugural Session • Power Panel – Smart Entrepreneurship in Challenging Times • Starting UP- Is there ever a Right Time? • Biggest "Marketing" Bang for the Buck • Smart Innovation • Business Unusual – Alternative Energy, Renewable Energy & Cleantech • High Impact Entrepreneurs • Smart Start Ups – TiE – Lumis Partners Entrepreneurial Excellence Awards • Closing Keynote Address • Gala Networking Cocktails & Dinner

19th SEP.

DAY 2

• Opening Keynote Address • Power Panel : TiE White Paper on Policy

SPEAKERS • • • •

• Scaling Up, Up & Away! • Managing Cash & Costs • Security - The Under Served Opportunity • “Strong Leadership” Mantras • Funding – “The when, who & how?” • Valedictory Session

Mentoring is a key value proposition

Guru Sessions - provide delegates an

of TiE and is a one-on-one interaction

opportunity to interact with successful

between a senior entrepreneur or

entrepreneurs, investors and marquee

professional and an entrepreneur who

individuals who are role models for the

needs guidance.

society at large.

• • • • • • • • •

P Chidambaram, Union Home Minister, GOI Sir Richard Stagg, British High Commissioner Ajai Chowdhry, Chairman and CEO, HCL Prof Anil Gupta, President SRISTI and Professor, Indian Institute of Management Ahmedabad Bharat Wakhlu, Resident Director, Tata Services P. Gautham, President, PepsiCo India Naveen Munjal, CEO & MD, Hero Electric V. Subramanian: ex-Secretary, Ministry of New & Renewable Energy Vikram Chandra, NDTV Bejul Somaia,Managing Director, Lightspeed Venture Partners Sanjeev Aggarwal, Managing Director - Investment Advisor, Helion Ventures Sandeep Singhal, Managing Partner, Nexus Capital Bala Deshpande, NEA Indo US Ventures

Networking Lounge - For Early Registrants Meet speakers, investors, charter members & domain experts in interactive, small groups over lunch & tea sessions, Get quality time and expert insight from the est in business! Submit your preference as early as possible to block time for your preferred networking lounge. One to one meetings with fellow delegates Enabling you to update your profile, search for other TiEcon delegates based on their interest/domain and send/receive meeting requests to connect with them at TiEcon Delhi 2009.

For registration: http://tiecon-delhi.org/registration-group1.asp • TiE Members

Rs. 6067/-

• TiE Regional Members

Rs. 5157/-

• Non Members

Rs. 8824/-

• Students

Rs. 3860/-

(inclusive of 10.3% service tax.) For Registrations Contact Krithi Rangachari krithi@tienewdelhi.org / 9810127290 Nimisha Maini nimisha@tienewdelhi.org / 9999404994

RNI No.DELENG/2007/22197. Posting Date: 5th & 6th of every month. Posted at Lodi Road HPO.

DL(S)-17/3314/2008-09-2010