The IBS Times; 192nd issue; August 2016

A ROUTE TO GLOBAL ECONOMY BY UTSAV CHANGOIWALA

The IBS times COVER STORY

ECONOMIC GAINS FROM HOSTING THE OLYMPICS?

BY ANTRA BHARATI

ONE NATION ONE TAX

INDIA – A COMMON MARKET

BY SNEHA TIBREWAL

AMAZON INDIA

GO GLOBAL ACT LOCAL

BY SHILPAM DUBEY

FinStreet, IBS Hyderabad

ISSUE NO. 192, AUGUST 2016

What’s Inside

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INTELLIGENCE BEYOND SUCCESS LETTER FROM THE EDITOR

TEAM IBS TIMES ISHAN GUPTA (EDITOR-IN-CHIEF) ROHIT TILLU (MANAGING EDITOR) ABHINAV BANERJEE

ANUPAMA KUMARSWAMI CHESTHA KUMAR EYAMINI N HEMLATA HAJONG JATIN SHARMA PRATEEK PANDEY RANU SARUPRIA SANDHYA ADHAVAN SWARUPA ROY ANTRA BHARATI DEBANJAN PAUL DIXITA REDDY GAGAN KAPOOR JEET PC

Dear Readers, Greetings from Team FinStreet.

Thank you everyone who has contributed and made us where we stand today. We look forward to continue our work of making available all the latest happenings around the globe with your gracious support.

Team FinStreet is proud to present the 192nd edition of The IBS Times.

Today, we bring to you a range of articles highlighting the changing situation in the country and around the globe. We bring our COVER STORY highlighting the economics of recently concluded Olympic games in ECONOMIC GAINS FROM HOSTING THE OLYMPICS. We further look into other areas with GO GLOBAL ACT LOCAL, A TALE OF TWO CITIES and INDIA – A COMMON MARKET. We look at some of the recent mergers in HDFC-MAX – A STEP TO CHALLENGE PUBLIC INSURANCE CO? and VERIZON WINS YAHOO!. We cover to ambitious and dangerous projects of China in our articles A ROUTE TO GLOBAL ECONOMY and THE SAGA OF SOUTH CHINA SEA. For Sector research we‘ve published a report on INDIAN TELECOM INDUSTRY will help you understand the movement of market for your future reference. From the investment point of view, this issue also brings to you an exhaustive report on BHARTI AIRTEL by Team Vriddhi Research.

RADHIKA GUPTA ROHAN BAJAJ SHILPAM DUBEY SHREYA RANI SMRITI PATODIA

Do make the most out of it and keep enjoying the experience of The IBS TIMES. Your feedbacks and opinions will help us make it better.

Ishan Gupta Team FinStreet

SNEHA TIBREWAL SRUJANA NAIK UTSAV CHANGOIWALA

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AMAZON INDIA STRATEGY GO GLOBAL ACT LOCAL

The Earth‘s most customer-centric company Amazon believes in customer above everything else. Does this strategy really work? The answer lies in searching how many ‗Amazons‘ are there in the world. The overcrowded ecommerce-era that we are living in there is no shortage of research and this gigantic world comprises nearly one million e-commerce websites earning a decent six to seven figures of revenue annually. Amazon is clearly ahead in the game with a humongous 107 billion USD revenues (in 2015) globally and with more than 304 million active customer accounts worldwide.

Amazon does international shipping to 75 countries tussling with giants like Walmart and Alibaba globally. In just two years Amazon acquired 15% market share in India and rose to almost 24% in April 2016. How much is India important to Amazon but more importantly how much is Amazon important to India? Does a company of such a huge scale came with a different marketing strategy when it entered India or it simply leveraged its brand value to expand its markets.

Why does a company need a marketing strategy that‘s specific to India? To put it simply, because India is different. India is full of contradictions in all the aspects that a marketer needs to study while entering any market. With a population size that threatens to beat that of China in few years and that which can be segmented on so many levelsculture, region, religion, economic-strata, lifestyles, behavior, age so on, India offers both can

-Shilpam Dubey

quantity and variety. Where its enormity can attract a marketer, its complexity can wipe him off. When Amazon entered India in July 2013 the challenge was to penetrate in to the Indian market and compete with the local brands. But, Amazon has emerged as one of the fastest growing e-commerce companies in India. And how does Amazon achieve this?

Globally Yet Locally ―Go Global Act Local‖ forms the essence of Amazon‘s strategy to capture a market. That means it formulates a unique and specific marketing strategy for entering a market. The key is to effectively use the demography details, psychology of the consumers, their behavior patterns, lifestyles, tastes and preferences based on culture, income levels, life stages, education, and geographies.

Amazon‘s strategies are mostly ‗realistic‘ than ‗optimistic‘. It segments and targets markets based on ‗what they actually need‘ instead of ‗what they might have‘. It is not really aggressive on trying to change the needs, it simply satisfies the need as what it is and does it fast. It‘s successful in delivering faster even at remote locations and even at free cost in some geographies. #AurDikhao Being a customer-centric company Amazon brands itself in accordance with local tastes.

Its tagline in India ―AurDikhao‖ essentially capture majority shopping style in India. In a nutshell, it captures Indian consumer‘s neverending choices lists. This campaign was a huge success in telling Indian customer that ama 4

Amazon has over 22 million products to choose from.

Amazon uses electronic media, TV-ads, social media, you-tube for promotions. Using search engine and getting your name high on the list has also proved to be an effective strategy. In India, Amazon‘s TV-ads contributed immensely in catching customer‘s attention.

One ad featured an Indian married couple where husband forgets about his wife‘s karvachauth festival and he tries to placate her by swiping Amazon‘s site in his phone screen. All the ads resonate highly with a quintessential middle-income Indian customer which also forms India‘s largest consumer base. But, a typical middle-income Indian customer is also very price-conscious. He would never pay a price which is not worth it.

So, how does Amazon achieves attractive prices?

offering discounts. In a bid to increase their web traffic, pricing has been strikingly low and discounts strikingly high. This has tremendously hurt the brick and mortar businesses. But, wait it has hurted their own business as well. In 2013-14 Flipkart, Amaon and Snapdeal raised funding of more than 1 billion USD and all this was infused in to giving offers, deep discounts and increasing the numbers of sellers. In 2013-14 the losses to net revenue ratio for Flipkart, Snapdeal and Amazon were approximately 45%, 58% and 53%. Discounts are like drugs because as the customer gets used to it, they need to keep giving to maintain the customer loyalty. They fall into a deep discount trap, a trap which investors can‘t pull them out of. In fact, the mounting losses has pulled the investors back from pumping money in to e-commerce.

Price Wars and Sky-High Discounts When Amazon entered Indian market, it feared to not to repeat the same mistakes that fouled-up its game in China. Jeff Bezos once said ―one lesson is to customize the products for local markets‖. History didn‘t repeat as since it entered Amazon has continued to eat market share from the local rivals like Flipkart and Snapdeal unlike in China where it failed to beat Alibaba. E-commerce in India has been immensely heated-up and extremely intricate as they compete on so many respects- Gross Merchandise Value, website traffic, funding, advertising, product differentiation, discount, amount of stuffs on websites, etc. Flipkart and Amazon once even had a war of words on twitter! But, what‘s more interesting is the ‗price wars‘.

Online sites don‘t need any reason for offering

There was a sharp fall in funding nearly by one-third in the second half of 2014. A research by Tracxn Tech. reveals that startupfunding has slumped in 2016 as compared to 2015 and the difference is as huge as 700 billion USD. Morgan Stanley Mutual Fund Trust lowered Flipkart‘s valuation by 15.5% in May this year. Even the Flipkart-Snapdeal merger can‘t make the situation any better.

Amazon seeks to go beyond all this as it announced an additional investment of 3 bn USD in India. But, is it going to be easy?

5

The road ahead..

pull of the same resilience in India as well?

The Indian e-commerce world is still in a nascent stage yet the industry is already witnessing falling profits and mounting losses. There can be broadly two reasons behind this- the unsustainable business model that we see happening with Flipkart. The other reason is the problems at the macro levels faced by the whole industry. In India it is none other than weak infrastructure. To solve this problem, Amazon has contracts with major delivery services like Blue Dart and India Post. But, the rural areas still remains untapped.

Another competitor which rarely gets talked about is the ‗unorganized‘ sector. The so called mom and pop stores pose a great threat to Amazon in India. To protect this sector, Government introduced new FDI rules in March, which bans online websites from dumping and discounting beyond a certain limit. In effect, Amazon sales growth slumped in the June quarter.

It‘s scary that the current Indian e-commerce scenario- low prices, high losses, mounting losses to name just few, is reminiscence of the dreadful dotcom bubble burst in USA in 1997-2000. Then, Amazon was one of the few companies to have survived that bubble. If the ecommerce bubble in India really exists, it will necessarily burst. Will Amazon be able to pu 6

POKEMON GO FAD ECONOMICS OF POKÉMON GO

These days If you scroll through your Facebook feed ,you will find photos of your friends trying to find certain Pokémon in college, bus stop , even in the middle of the road so what is Pokémon go??

Debut Pokémon initial debuted in 1996 on the Nintendo Game Boy. In those games, the player, in an remarkable quest to become a Pokémon Master, would have to be compelled to battle pokémon, exploit already-captured pokémon, so as to catch them. The new game is much simpler: No battles required, except at coaching ―gyms‖ wherever users will battle one another. after you notice a pokémon on Pokémon Go, you just have to swipe your finger to catch Pokémon. In different words, it's a so much less complicated game than past versions, however in that lies the brilliance.

Launch

Pokémon Go was initially released in selected countries in July 2016 It is a Location based game developed by Niantic(japan) . In the game, players use a mobile device's with GPS capability to locate Pokémon, who appear on the screen as if they were in the same realworld location as the player. The game was conceived by Satoru Iwata . He is computer science graduate from Tokyo institute of technology. He started his career in gaming industry with HAL laboratory when he was studying in university. While working there he contributed in development of games like Earthbound and Kirby and the famous pppppppppp

-Rohan Bajaj

pinball. In the gaming industry he is known as super programmer.

The Pokemon Effect So why do people of all ages love this game?. Humans are naturally nostalgic. We are still in love with our childhood memories.

Much of Pokémon go‘s success stems from the nostalgia factor. Many teens and adults see Pokémon go and think back to their childhood days. Niantic has employed into this fantasy of Pokémon lovers of catching Pokémon in actual life. With Pokémon go, they've created a product that brings dream one step closer to reality. Since the release, people are hooked. People in Australia started playing this game first, followed by the US and Japan. Social media erupted with posts about it. This created eagerness in countries like England, where people haven't played the game yet. The game was covered in both social media and traditional news . People didn‘t even know they wanted to play until they saw other people enjoying it. Pokémon go overcomes the humiliation of idleness attached to playing video games by disguising exercise as gaming. Even parents like this game, because it gets their kids to go outside and play. One of the most interesting facts about this game is that it has more users than Twitter. Another reason why people like this game is that it helps them to socialize.

Chances are when you are hunting for your Pokémon you may meet other people who are also looking for the same Pokémon. you may also encounter people in pokestops and pokegyms. When you meet other trainers they s 7

share the same interest of Pokémon so it‘s a great opening point for conversation. You can also Share your experiences, compare Pokémon, and get to know your fellow trainers.

Effect On Nintendo and Gaming Industry

Since the release of the game, Nintendo stock increased by fifty seven within 5 day .The market cap of the company increased by 10 billion USD . It‘s an enormous win for a 120year-old gaming corporation that has been widely criticized in recent years . However Pokémon Go‘s success changed the impression of Nintendo. Since the release, the app became popular and caused enthusiasm for Pokémon merchandise. The online retailers saw rise in the sales by 105%. With t shirts and toys being among most popular products.

Losing Its Go Nintendo reported first-quarter profits after the release of the game. The company is estimated an yearly net profit of 35 billion yen in the current financial year, up from the 16.5 billion yen it made last year. As of July 20, short-sellers had made up a wager worth $940 million or 2.6 percent of outstanding shares that Nintendo Co. The stock dropped 18 percent to 23,220 yen at the nearby in Tokyo, the maximum one-day move allowed by the exchange, allocating out 708 billion yen ($6.7 billion) in market value.

The change came after Pokémon Go‘s release almost doubled Nintendo‘s stock through Friday‘s close, adding $17.6 billion in market . Nintendo is a stakeholder in the game‘s developer Niantic Inc. and Pokémon Co., nevertheless has an "actual economic share" of just 13 percent in the app, according to an approximation by David Gibson, (Macquarie Securities analyst ) In a press release after the market shut on Friday in Japan, the Kyoto-based Corporation said the game‘s financial impact will be "partial" and that it is not necessary to revise its annual forecast even after considering in current conditions. It also said revenue from Pokémon Go Plus, a Nintendo-produced auxiliary for the game expected to go on sale soon.

―The game has been available in Japan, so for the while being we‘ve exhausted all the promoters. ―The stock would cut, according to researcher IHS Markit. At current prices, such a bet would have produced about $140 million in profits. Shares of related businesses also fell. McDonald‘s Holdings Co. (Japan), the game‘s special launch partner, declined 12 percent. Electronic parts manufacturer Hosiden, which Mitsubishi UFJ Financial Group said may create Pokémon Go Plus, sank 16 percent.

Besides the earnings declaration on Wednesday, Morgan Stanley said the next emphasis point is if Pokémon Go takeoffs in China, where contact to geographical data necessary for the game is controlled by the government. Investors are also waiting for statements on Nintendo‘s other forthcoming mobile games and its next-generation console expected to be released next year.

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THE BIGGEST PRIVATE INSURER HDFC-MAX – A STEP TO CHALLENGE PUBLIC INSURANCE CO?

-Gagan Kapoor

8th August, 2016, a day which was awaited by and made insurance investors, insurance companies and corporate experts anxious records the acceptation of merging of HDFC Life Services and MAX Life evaluated as a potential combination by the two companies.

For HDFC, this was the second such merger announced in this month. In Early June, HDFC Ergo General Insurance, the general insurance body of mortgage lender HDFC, announced that it might acquire L&T General Insurance for Rs 551 crores.

In the past, Aviva Life also tried for it but it was not able to conclude the deal. Much because mergers in life insurance are triggered by amount of distribution and scale do the two parties bring for creating the best combination.

Agents (including HDFC Bank and Axis Bank) will continue their strategic distribution partnership with HDFC Life the merged insurance entity.

Proposed benefits: • The Transaction creates Rs 255 Bn annual premium company, with scale, stratified connected portfolio and larger reach to expand in a growing life insurance sector.

• Delivers attractive value proposition for both stakeholders, with significant operating leverage and teaming • Policyholders to benefit from enhanced product portfolio and vibrant touch points • Employees might have a greater opportunities across work and geographies

9

• The best news for HDFC will be the listing in NSE and BSE after completion of the proposed Transaction • After the merger, the new company will have 601 branches (398 from HDFC Life and 211 from Max) plus 23,620 employees (HDFC with over 15,100 and around 8,780 at Max) at the present combined head count What’s on the tabe for shareholders?

• With Rs.1.1 trillion of assets, the merged entity will overtake ICICI Prudential Life Insurance as India‘s No. 1 non-government insurer, although it will be dwarfed by state-owned LIC, which had Rs.21.70 trillion of assets at the end of March 2016 • The deal provides Max Life owners one share of Max Financial for every 4.98 shares of Max Life. In the next step, shareholders of Max Financial (Following the amalgamation with Max Life) will get 2.33 shares of HDFC Life for each share • Shares of Max Financial have gained 10.38% since 17 June to 17 Aug • Analjit Singh (founder and chairman of Max Healthcare and Max Bupa Health Insurance and Executive-Chairman of Max Life Insurance) owning 30.45% stake in Max Financial Services will be holding 6.5% in the merged company and also get a non-compete fee of Rs.850 crore • In addition, the two marquee investors KKR and Goldman Sachs who are currently shareholders in Max Financial Services with 3% and 4% shares each respectively in the merged entity • HDFC having about 61% stake in HDFC Life will end between 36-40% sake • The total foreign shareholding in the merged entity will be 41%

• The US based Standard Life that occupies 35% stake in HDFC Life currently will land up having 21-23% stake in the merged entity • In the final merged entity, HDFC group that includes HDFC, Standard Life and Azim Premji will together have 65% stake.

The Max group under the leadership of Analjit Singh has 35% ownership to be distributed among Singh family, Japanese financial behemoth (MSI), a member of MS&AD Insurance Group, Goldman Sachs, KKR and general public Market Share The suggested transaction is bringing together two large life insurance players with complementary capabilities. The merged insurance body on pro-forma basis has a combined market share of 10.8% 2, in the extremely competitive life insurance market lead by LIC with a market share of nearly 70%. The merged insurance entity has an edge of diversified distribution mix with the contribution (excluding group segment) based on FY16 new business premium being agency 19%, bancassurance 64%, direct 11% and others 5%.

On completion, HDFC Life is expected to have bancassurance partnerships with leading banks including HDFC Bank and Axis Bank.

Can it be a competition for public sector insurance companies?

It is expected that in the next 12-18 months, insurance can see 3-5 such deals between small and medium sized companies that are looking forward for increasing their reach, distribution as well as communication channel.

10

Records show that at present, there are nearly 24 life insurance companies in India and most of them have foreign partners and there has been an increase in equity of many foreign investors to 49% after foreign direct investment limit was raised from 26%.

public shareholders because if doesn‘t happen then it might go against the spirit of protecting shareholders‘ interest and regulations (takeover code) and the proposition would be liable to be scrutinized by the regulator.

So the expectancy of Private sector becoming a challenge to LIC in terms of grabbing market shares is really high.

Share price of Max Financial Services

What’s Left?

• Approval: An upfront approval of public shareholders i.e. greater than 50% of the votes cast is sought by Max Financial Services for payment of the non-compete fee and shareholders holding more than 75% stake of Max Life are required to agree for the proposed transaction. Other than that Max India is also seeking an upfront approval of its public shareholders for the proposed transaction • The proposed transaction will also need an approval by a majority of shareholders invited at the Court convened shareholder meetings of each of HDFC Life, Max Life, Max Financial Services and Max India • Promoters: HDFC Ltd. and Standard Life (Mauritius Holdings) 2006 Ltd. Will stay as the promoters for the new firm • Expected Time: The proposed transaction is expected to become effective in the next 12-15 months Even when the hopes of investors and stakeholders are expecting a lot and this might actually bring in better services to the Private Insurance industry, some professionals raise the point that compensation provided (shares, monetary compensation, etc.) being given to promoter should be levelled with the one being given to pu 11

BRAZIL RIO DILEMMA ECONOMIC GAINS FROM HOSTING OLYMPICS?

―Olympic Games‖ are the leading international sporting event held every leap year, featuring summer and winter sports competitions alternating by occurring every four years but two years apart. Athletes from around the world participate in a variety of competitions held like archery, baseball, softball, boxing, canoeing, cycling, diving, equestrian contest , field hockey, gymnastics, judo and taekwondo, the modern pentathlon, rowing, sailing, shooting, soccer, basketball, swimming, table tennis, team (field) handball, tennis, trampoline, the triathlon, volleyball, water polo, weight lifting, wrestling. The Olympic Games are considered the world's foremost sports competition with more than 200 nations participating.

Economies of hosting the Olympics The competition for hosting the Olympics has become a hotly debated political arena. In which the countries try their best to win the opportunity to host the world‘s biggest sporting event. The two major reasons why cities bid for Olympics are, first to win public funds for long term infrastructural development and the second reason to represent the city as a ―global city‖ especially to their travellers and international businesses.

There are both advantages as well as disadvantages of hosting the games. Hosting an international event would undoubtedly drive tourism, attract foreign investments, help in infrastructural development and hence generate profit for the region. During the event a visible increase in profitability could be

-Antra Bharti

be seen due to rush in hotels, restaurants, retails and public transport.

However, host countries should also be prepared for a poor showing and negative backlash, which could ultimately damage future tourism. The Olympics generates revenue, but it also requires a huge initial budget, organising the event can be extremely expensive and might render a city nearly bankrupt, or left with huge debts and maintenance liabilities to payoff, as we have already seen in the past. A growing number of economists also argue that both the short and long term benefits of hosting the games are at best exaggerated and at worst non-existent.

As both the cost of hosting as well as the revenue earned from it grew rapidly. Many argue that the bidding and selection process should be restructured to incentivize a realistic budget planning, increase transparency, and promote sustainable investments that serves the public interest. If we go through the chart given below, we can see the actual difference between estimated vs the final Olympic cost.

Every country organising Olympic Games since 1960 has seen major cost overruns. In the year 1972, Denver became the first host city to reject its Olympics, as the voters passed a referendum denying to incur the additional public expenditures for the games.

The Summer Olympics held in 1976, in Montreal represented the fiscal risk of hosting, as it left the city‘s taxpayers with billions of dollars of debt that took decades to pay off. The projected cost of USD 124 million 12

million was more than USD 2.6 billion short of the actual cost, mainly due to the delay in construction projects and cost overruns of a new stadium. As a result, in 1979 the only country which was ready to bid for 1984 Summer Olympics was Los Angeles, which allowed it to negotiate with (IOC) International Olympic Committee in favourable terms. Instead of creating new facilities Los Angeles relied almost totally on existing stadiums and other infrastructures.

Hence that showed a sharp jump in revenue.

It made L.A the only city to earn a profit on hosting the Olympic Games, finishing with a USD 215 million operating surplus. L.A.‘s success led to a rise in number of cities bidding, from two for the 1988 Games to twelve for the 2004 Games.

This allowed the International Olympics Committee to choose the cities with the most ambitious and expensive plans. Over the past two decades bidding by developing countries has more than tripled, which have been eager to use the games to demonstrate their progress on the world stage.

However, these countries need to invest massive sums in creating the necessary infrastru

infrastructure. Costs spiralled to over USD 45 billion for Beijing‘s Summer Games in 2008, over USD 50 billion for the Winter Games in Sochi, Russia, in 2014, and an estimated USD 20 billon for Rio de Janeiro in 2016, which resulted in increase in number of bids going to countries like China, Russia, and Brazil, which have been eager to use the billion. On the other hand, these costs have also led to renewed Olympics scepticism, as a number of cities have withdrawn their bids for the 2022 and 2024 Games over cost concerns.

Rio Olympics 2016: economic gain or loss?

The past issues directly relating to the Olympics, however, are also affecting Brazil during this fragile time. Brazil is going through its worst recession in decades: leading to double-digit inflation, unemployment, and a corruption scandal that saw the sinking of the state oil company.

As Rio de Janeiro is already struggling with rising crime, funding shortfalls, underequipped police forces and hospitals, and major concern is over the Zika virus, as it poses a serious concern over the health of participants. Another challenge was to convince 13

convince people to actually attend the Rio games.

In such situation hosting such a mega event would turn economical or not is an ongoing debate and could be analysed only after the event is successfully executed.

In terms of balancing out expenditure and profit on hosting, Brazil‘s prospects are bleak.

As the Organising Committees of the Olympic Games (OCOG) provides the report showing that every city that has hosted the Olympics since 1984, has broken even, it does not account for capital costs. The OCOG budget refers to operating costs, not huge capital expenses such as stadiums, the media centre and infrastructure. It is evident Brazil is taking a large risk in expecting profit to outweigh the expenditure.

However, the International Olympics Committee (IOC) has also released many predictions based on previous revenues earned by hosting Olympics, combined with Rio‘s current economic state. The estimated figure for TV broadcasting exceeds all other channels of revenue. With Rio set to earn more than double the TV broadcasting money than the 2004 Olympics in Athens.

Lucrative and profitable sponsorship deals from big companies are also a big revenue source which makes up 20 percent of the total revenue. Official sponsors for Rio 2016 include Coca-Cola, Nissan, McDonalds, Panasonic, and Samsung.

Infrastructure and tourism As per the prediction 400,000 tourists will visit Rio during the Olympics. This will lead to a surge in sales for tours of famous monuments and landscapes.

However, Brazil has to overcome many serious challenges to attract foreign visitors.

This includes more accessible visas and adequate infrastructure.

Another major concern for Brazil is the zika virus. Over 200 academics around the world have called for the games to be postponed or moved to another country, claiming the WHO is failing to assess the risks posed by the ongoing pandemic.

The country will have to reconsider its infrastructure plans, taking into account health and safety guidelines in order to successfully maintain its stadiums and overhaul national transportation to accommodate for the Olympics.

Affect on the local community?

Many of Rio‘s civilians are not ecstatic about the Olympics. As the Brazilian government has trampled the homes of locals and uprooting communities in some inconveniently located areas. As per the estimate, 385 families were evicted from their homes last year, to make way for a high-speed bus lane, which connected the international airport with one of the host villages for the Olympic Games.

Relationship with local communities is a major contributor to the success of the event.

Thus the Brazilian officials will need to strengthen that relationship if they want businesses to contribute to the Olympics‘ predicted revenue.

The Olympics are not all about competition, heroics and national pride but also about big business. Only a successful completion of 2016 Rio would give more insight.

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AUTOMATION AND IT INDUSTRY A TALE OF TWO CITIES

Information Technology (IT) can be defined as the utilization of computing via hardware, software, services and infrastructure to create, store, exchange and leverage information in its various forms to accomplish any number of objectives. Additionally, the term encompasses the workers that develop, implement, maintain and utilize information technology directly or indirectly. Its elements include:

IT Industry In India India is the world's largest sourcing destination, accounting for approximately 55 per cent of the US$ 146 billion market. The industry employs about 10 million workforce.

More importantly, the industry has led the economic transformation of the country and altered the perception of India in the global economy. India‘s IT industry amounts to 12.3 percent share in global market, largely due to exports. Export of IT services accounted for 56.12 percent of total IT exports (including hardware) from India. The country's cost competitiveness in providing Information Technology (IT) services, which is approximately 3-4 times cheaper than the US, continues to be its Unique Selling Proposition (USP) in the global sourcing market. The contribution of the IT sector to India‘s GDP rose to approximately 9.5 per cent in FY15 toer

-Dixita Reddy

from 1.2 per cent in FY98.

The Indian IT and ITES(IT enabled services) industry is divided into four major segments – IT services, Business Process Management (BPM), software products and engineering services, and hardware.

The term Business Process Outsourcing or BPO now popularly known as Business Process Management (BPM), refers to outsourcing in all fields. A BPO service provider usually administers and manages a particular business process for another company. BPOs either use new technology or apply an existing technology in a new way to improve a particular business process. Indian BPO companies offer varied services, such as, customer support, technical support, telemarketing, insurance processing, data processing, forms processing, bookkeeping and internet / online / web research.

Major giants of Indian IT industry are Tata Consultancy Services ltd, Infosys ltd, Wipro ltd, HCL ltd, Tech Mahindra ltd, L&T Infotech ltd etc India‘s technology and BPM sector (including hardware) is estimated to have generated US$ 146 billion in revenue during FY15 compared to US$ 118 billion in FY14, implying a growth rate of 23.72 percent. The Business Process Management (BPM) segment accounted for 23.46 per cent of total IT exports during FY15.

Automation by AI Artificial Intelligence (AI) can automate vast au 15

sections of IT industry itself. The biggest leap is happening in the areas where software learns by itself. So a testing software can not only point defects but start correcting them after understanding the pattern. The IT industry employs army of people who monitor software, hardware and networks for defects and then rectify them. In the next few years this defect detection as well as correction can be automated.

Negative Side Effects On BPM: India is now the world's favored market for BPM companies, among other competitors, such as, Australia, China, Philippines and Ireland. The BPM boom in India is credited to cheap labor costs and India's huge talent pool of skilled, Englishspeaking professionals. Quality orientation among leading BPM companies, 24/7 services, India's unique geographic location and the investor friendly tax structure in India have all made the BPM industry in India very popular.

Indian IT services sector may lose 0.64 million ‗low-skilled‘ jobs to automation over the next five years.

Low-skills are defined as those that follow a set process and are repetitive and do not require much in the way of educational qualification Medium skills are those that require some amount of human judgment in the process, dealing with more challenging problems. High-skilled jobs require creative problem solving, analytics and critical thinking.

The BPM industry is going to be facing the problem of robotic process automation in the next two years. This is a challenge the industry and the country will face.

Employment: Hiring trend has lowered. For lower-level jobs (entry-level), hiring will keep reducing by 10% every year. Ordinary graduates who are trained to go up the ladder will have less prospects. Out of the total number of people hired, fresher level doing ordinary work, there will be 10-15 per cent reduction in the category year-by-year.

IT firms are getting stricter on staff performance. Companies are also moving away from a bell curve appraisal system to a process that tracks employee performance regularly. Typically, the Bell Curve segregates all employees into distinct baskets — top, average and bottom performers — with the vast majority being treated as average performers.

TCS and Infosys, as also global players IBM and Accenture, have moved away from the former system to one of regular feedback, not simple once or twice a year.

Economic growth: Its future growth is unlikely to exceed 15% which almost equal to nominal GDP growth rate. Hence it will cease to be sunrise industry. This will impact growth of related sectors e.g. reality, catering, transport, domestic help etc. It will still contribute significantly to government tax kitty especially the direct taxes but its share in GDP will grow slowly. As margins and growth rates fall, so will be the market capitalization. Today just 5 companies i.e.

TCS, Infosys, Wipro, HCL and Mahindra Satyam account for more than 10% of market capitalization of of whole of BSE listed companies. This ratio will fall.

The Bright Side of Automation While reduced advantage

workforce

means

cost

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•

•

•

• •

advantage for IT companies, it is still a matter of worry for industry. Building capabilities is going to be one of the main agenda for the next few years. The industry needs to design, develop and roll out a massive re-skilling program to train and re skill 4-5 million people Indian IT players over the last few years have pressed the paddle for the retraining of its employee base as new technologies take centre-stage at clients business environment.

For instance, Tata Consultancy Services (TCS), country's largest IT services provider, is training 100,000 employees on digital technology.

Similarly, Infosys had announced that it will train 40 per cent of its workforce in design thinking Intelligent machines entering business en masse over the next few years will provide organizations an unprecedented opportunity to unleash the true potential of their workforce of the future. Engineering services in a bright spot, and so is analytics, with their being such a proficiency for data and technology from its services talent Start Ups: One of remarkable trend in the recent years is the growth of startups.

These are remain an important part of the ecosystem. They heavily rely on web and mobile based technologies and look like IT companies. The launch of mobile apps and general penetration of net has taken online methods to sections of populations which was technology averse or ignorant say elders or in small towns Potential for massive rapid growth for software services As machines take on routine tasks like planning, scheduling and optimization, managers will be freed to focus on reseavdfed

strategic and more creative work, applying intuition and ethical reasoning to make the judgment calls that even the most advanced machines can‘t. Artificial intelligence (AI) will enable managers to make faster, more thoughtful, collaborative decisions • TCS has created a neuroscience based selflearning platform called Ignio for optimizing and automating IT operations and processes. Infosys has purchased a company called Panaya, a leading provider of automation technology for large scale enterprise software management etc. But much will depend upon the thought leadership of Indian IT captains Unfortunately, many managers simply aren‘t prepared to make the transition. And that‘s a problem. In a world that increasingly rewards speed, innovation and agility, the quality of ―judgment work‖ will quickly become a key differentiator in the years ahead.

Organizations might opt to postpone action until the need for judgment workers is more obvious. This ―wait and see‖ approach can have a detrimental effect on growth and competitive advantage. Now is the time for organizations to put programs and practices in place that will enable a new breed of judgment workers to flourish.

17

ONE BELT ONE ROAD A ROUTE TO GLOBAL ECONOMY

History is about to repeat itself and it is the Chinese to do it again. The ambitious China even after going through a financial slowdown has not left its vision of overtaking USA to become the strongest economy globally. Chinese are those who just do not sit back and let an opportunity pass by instead they create an opportunity by targeting at something that seems impossible for rest of the world. China has went on to become a economic superpower and a manufacturing powerhouse from a totally backward country in just 30 years. They made it a point that they become self reliant and a large exporter of all its goods to be consumed by people around the world and now it is trying to aims at becoming an innovative, Hi -tech, producer of higher value-added and quality production.

India even after 70 years of independence is still a developing country and that is because India is not been able to execute its ideas properly whereas Chinese have strategically moved ahead with proper plan of their ideas and its execution to be at a place where it is now. It was just 3 years back when President Xi Jingping and its team decided to come up with a really visionary idea of 'One Belt One Road' initiative to bring back the flourishing business happening in the trade through the Silk Route. Now they have planned to connect China by road with all the countries that were in the silk route.

Silk Route has the potential to increase the business opportunities which will have a greater impact on the economies of the country that are involved in it like it had been in the past. Earlier silk route made transportatio

-Utsav Changoiwala

transportation of goods and flow of business a lot easier . It was the famous route used by almost all the expoters and importers to trade their goods and articles.It had all started back in 1877 under the Han Dyansty in China when a german geographer and traveller Ferdinand Von Richthofen found the potential of this route and coined the terms 'Seidenstrasse' meaning 'Silk Road' and also 'Seidenstrassen' meaning 'Silk Routes'. Silk Route got its name from the product that was traded the most in that route at that particular period ,that is Silk. It not only exchanged goods but also the splendid and diverse culture of the places that were connected in this route. It connects to almost present day 65 countries across Asia, Europe and Africa through land and sea routes.

The Maritime Silk Road(Sea route) connects China's east coast to ports such as colombo in Srilanka, Gwadar in Pakistan through Indian ocean and along the Red Sea it connects to Piraeus in Greece with it ending at Venice.

The overbelt route (Land route) starts from Venice to connect to Duisburg in Germany which further goes on to Moscow in Russia and from there it comes down to Central Asia, then to Western China to end in Xian. Xian was the ancient capital where this historic Silk Route had begun.

The main areas this project will be focusing on are: Infrastructure, Trade, Policy, Finance and People.

It is also said that this initiative is going to create a transitional China-centric economic corridor: 18 The main areas this project will be focusing

• New Eurasian Land bridge that will be connecting the port of Lianyungang in Jiangsu province to Rotterdam.

• Mongolia- Russia Corridor • Central Asia - West Asia Corridor • Indochina peninsula corridor • Pakistan Corridor • Bangladesh- China- India- Myanmar Corridor This is a huge project involving a lot of countries, companies, institutions and equally huge funding. The total project is estimated to cost around USD 8 trillion or more for which three financial institutions that are majorly investing in it. China's Silk Road Infrastructure Fund will be investing USD 40 Billion,Asian Infrastructure Investment Bank(AIIB) is putting in a massive contribution of USD 100 Billion and the Bank Of Brazil,Russia,India,China And South Africa (BRICS) will provide an initial capital of USD 50 billion which will increase to USD 100 billion .

Its impacts is more outrageous as on completion of the project its impact will seen on 4.4 billion people and it is also estimated to generate a jaw dropping revenue of USD 2.5 trillion in the initial years. This project is going to majorly impact China. It will accelerate development of China's Western and Central Provinces. It will also increase its connectivity with its neighboring countries making it the hub. This easy connectivity can be a major factor to attract more companies to start their operations in China.

The project is like a bundle of opporunities which needs to be exploited. It does not constraint it self to asia but also others to win business; It can turnout to be a critical point if companies get involved in it as soon as possible

possible in order to gain advantage over other to a wider tranche of the Chinese market and to third markets along the route. It is not just going to boom the infrastructure sector but also various others like financial and professional services, agriculture and environment are also key areas for growth and development. There are ancillary private sector investment opportunities in telecoms, e-commerce, tourism, education, creative industries and green technologies.

The road is promising but there are speed breakers with which you need to be careful of. The uncertainities which lie here is what the policy makers need to keep in their minds all the time. Few of these challenges are: • Interconnectivity and credit risk: It is the risk where any sort of disruptions happens in any of the silk route countries and the credit risk where terms of payment may be different in different countries • Political Risk: With so many countries involved and each having a different political outlook, the political uncertainty increases • Social Implication: China might shift its overcapacity in the countries within the belt which will bring in the social implications 'One Belt One Road' initiative is a huge step taken by the Chinese Government which basically requires the consensus and full cooperation of the countries that are connected with it over the long term are paramount for it to be a lasting legacy. It has a lot to give to the world, but what keeps me wondering will these ties remain the same among all the countries? or else is it a route to global village?

19

INDUSTRY ANALYSIS TELECOM INDUSTRY

The telecom sector is one of the fastest growing industries in India. India boasts the world‘s second largest telecommunication market and it has contributed US$ 400 Billion in terms of Gross Domestic Product(GDP) of the country in 2014. The recent changes in Foreign Direct Investment(FDI) norms has made the sector one of the fastest growing and one of the top five employment opportunity generator in our country. The sector which is growing exponentially is expected to contribute about 4.1 million additional jobs by 2020, as per Groupe Special Mobile Association (GSMA).

-Debanjan Paul & Jeet PC

The growth of the telecom services market is increasing year on year. It is expected to reach US$103.9 billion by 2020 and the total mobile services market revenue in India is expected to touch US$37 billion in 2017.

India also falls on the top three list of highest number of Internet users in the world. More growth is expected in the broadband services user base. It is expected to grow to 730 million connections by 2020 as per reports.

In September 2015, total telephone subscription stood at 1.02 billion, while tele density was at 80.98 percent.

India also hit the highest number of mobile subscription of 21 million during the fourth quarter of 2015.

Market size India has the second largest mobile subscriber base in the world. According to Telecom Regulatory Authority of India(TRAI), the total number of subscriber in December 2015 was understood to be around 1.04 billion, out of which 1.01 billion were mobile subscribers and 25.52 million were wireless subscribers.

It is clearly seen that the wireless segment dominates the market.

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Sources of investment

Being one of the most high flying sector with a daily increase in subscriber base, there have been a lot of investment and developments to keep the run going.

The industry has attracted FDI worth US$ 18.38 billion during the period April 2000 to March 2016, according to the data released by DIPP. Some of the major investments developments happening recently are:

and

• The world‘s 3rd largest smartphone maker Xiaomi has approached the government of India to set up handset plants in collaboration with Foxconn, a Chinese contract manufacturer, in order to meet the rising demand of the current market • Similarly, another Chinese manufacturer OnePlus plans to start manufacturing in India with a vision of manufacturing 90 percent of the product locally • A subsidiary of Malaysian largest Telecom firm Axiata Group, Axiata Digital has also entered into the Indian E-commerce market by investing Rs 100 Cr • India‘s largest telecom operator Bharti Airtel has planned to buy the entire spectrum of Videocon Telecommunications for Rs. 4,428 Cr. which will give them additional spectrum in 1800Mhz band and also plans to invest Rs. 60,000 Cr. over a period of three years to enhance its network capacity and improve the quality of voice and data services to its customers • The Lenovo Group has started manufacturing its smartphones in India near Chennai, becoming the largest Chinese company to follow ‗Make in India‘ strategy

Some of the initiatives Government are:

takes

by the

• The Indian government cleared its biggest spectrum auction across seven bands, which is expected to generate a revenue of Rs. 5.66 Trillion, expand the bandwidth and address the problems of call drops • The Department of Telecommunication (DOT) has amended the unified licence of all the telecom operators which means that they can share infrastructures such as antenna, feeder cable and transmission systems which leads to lower costs in operations and faster rollout in networks • The Telecom Regulatory authority of India (TRAI), has asked all the telecom providers to compensate customers in case of call drops with a view to reduce the number of call drops • The government plans to roll out free high speed wi-fi in 2,500 cities and towns over the next three years. It will be implemented by state owned Bharat Sanchar Nigam Limited (BSNL) • The Government has allowed two options of payment to Telecom companies for acquiring the right use of spectrum. One is upfront payment and the other is payment in installments Major Market Players and their shares As per reports published by TRAI, Bharti Airtel leads the mobile operator market with 24.22 percent while Vodafone retained the second position with 19.16 percent.

Idea Cellular has 17.01 percent of market share, Reliance has 9.33 percent, while Aircel has 9.93 percent.

BSNL‘s share is 8.26 percent, Tata Docomo has 21

has 5.87 percent and Telenor has 5 percent of the total market share till February 2016.

The top five wired broadband service providers are BSNL with 9.91 million customers, Bharti Airtel with 1.71 million, MTNL with 1.11 million, Atria Convergence Technologies with 0.91 million and YOU Broadband having 0.52 million customers.

The leading wireless broadband service providers are Bharti Airtel with 35.22 million customers, Vodafone with 26.44 million, Idea Cellular with 22.20 million, Reliance communications group with 15.52 million and BSNL with 10 million customers each.

Research and Development India offers an unprecedented opportunity to the telecom service providers infrastructure wise. Efforts are being continually made to develop affordable technology for masses, and also secure and tested infrastructure for enabling interoperability in Next Generation Network. Modern technologies induction is being promoted. Also to beef up R&D infrastructure in the telecom sector and bridge the digital gap, cellular operators, top academic institutes and the Government of India together has set up Telecom Centres of Excellence(COEs) with an objective to utilize the available talent pool and create environment in innovation.

A few aspects to focus on The telecom revolution has changed the landscape of India. We are now a nation in which everybody has phone where once not so long ago one had to book a phone with MTNL/BSNL and then wait for months to get delivered. The phone purchases are frequent and the infrastructure has reached the far inferior

interiors of the country too.

While the positive impact of connectivity is certainly tremendous, the necessity of telecom firms eradicating the prospects of harming the environment and social impacts has become necessary too.

Telecommunication services includes transmitting voice and data from one user to another end user using handsets. This transmission infrastructure has significant impact on ecological environment and both end users and corporations are part of this and its outcome can be critical.

A few of the key examples and measures which can be taken are listed below: 1.) Sometimes we see 4 or 5 or even more towers are located close by. They not only use emit harmful radiation but also significant amount of diesel for power.

Measures that can be taken- We can use cleaner fuel and the towers can be shared or installed in areas where the radiation does not harm.

2.) Telecom products generate huge amount of e-waste such as phones, sim card, batteries etc. They include heavy metals such as lead, cadmium, mercury and arsenic. If they are not handled properly, it can poison our environment and threaten the health of individuals and society.

Measures that can be taken- The e-waste contains a lot of reusable material. It can be reused to manufacture new products rather than exposing it to the society. Appropriate handling of e-waste can prevent serious environmental damage.

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3.) Impact on Biodiversity-Not only humans are affected by radiation from towers but this also affects birds, bees, trees and other species living nearby. Hence it has become a significant issue for telecom.

few years. No doubt the government‘s policies and support played an important role in the success story, the industry needs more of it now at this crucial juncture.

Measures that can be taken-An industry wide joint actions needs to be taken to overcome this situation and make a genuine difference.

Opportunities Even though this sector has come a long way and has reflected a promising growth, the tele density in India still remains very low as compared with international standards and thus providing tremendous opportunity for future growth.

The rural market holds a huge potential to drive the future growth of the telecom companies. Penetration in rural areas will not only support the growth in telecom service providers but also increase in the demand for equipment and infrastructure.

With the launch of 4G, the telecom market will look to reach the next level. Although it has been launched quite a while back in 2012, its deployment in India is still in a very nascent stage. The 4G services will be instrumental in stimulating future growth of the telecom industry.

Way Forward The telecom industry is Government‘s poster boy of economic reforms for its significant contribution towards the country‘s GDP and socio-economic growth. India will emerge as the leading player in the world in terms of global users by 2025 as per a Microsoft report. And with the 4g services hitting the market a fast growth is expected in the next def 23

ONE NATION ONE TAX INDIA – A COMMON MARKET

The biggest economic reform since 1991 is the Goods and Services Tax Bill (GST) sails through Rajya Sabha with a unanimous voting of 203 members present on August 3rd 2016.

Getting here has taken 10 years since P. Chidambaram, as finance minister, announced in 2010 target for introducing GST in his budget speech of 2006. Sixteen years if counted from prime minister Atal Bihari Vajpayee‘s establishment of the first empowerment committee to design a GST in 2000. The reform has been subjected to many conflicts of interest: between political parties -the Congress and the Bharatiya Janta Party (BJP), between Union and state government, and between the producer and the consumer since GST entails a shift from a production based tax to the one based on consumption.

What is GST? GST proposes a single point payment of taxes. It will completely change the architecture of indirect taxation and restructure its power between Union and State government. The main aim is to integrate common market for the whole country. It is essentially a tax on value addition at each stage, and levied at each point of sale and not purchase. This means that the consumer bears the GST charged by only the last dealer in the supply chain, thus making it cheaper for the customer and increasing the profitability of his business.

There are various other taxes levied by the Central and State government on production, manufacturing and distribution trade, where no set-off is available in the form of input tax in

-Sneha Tibrewal

credit. GST accumulate and lead to increasing the cost of final product which the customer has to bear. GST subsumes all these taxes which are set off at each stage starting from producer and ending at the retailer, thus easing the burden on final consumer. A single point of taxation is expected to bring a lot of ease to business, avoid dual taxation, reduce logistic cost and time, and also reduce the overall cost of goods sold.

The major issue of current taxation system is the cascading effect. This means the consumer has to pay tax on tax and many other taxes because of different norms of state and central policy, which in turn increases the cost of goods in the market. GST plays an important role here, since all the tax is paid to the centre and then it will internally make payments to the states.

The expected date to roll-out GST is the start of next financial year i.e. 1st April 2017.Though the time between its first step and implementation looks enormous, but it‘s a daunting target for the government and will take hours of daily work until the bill is turned to a law. Clearance from Rajya Sabha then Lok Sabha on 8th August 2016 was the initial phase. The next step is to ratify the bill by atleast 15 legislative assemblies in the nation. After this, the final bill will be sent for the approval of the President – Pranab Mukherjee. Once the process is stated legal, the actual work of implementation starts, within 60 days thereafter, the president needs to appoint a GST Council and parallely an IT platform needs to be prepared.

24

The council will be chaired by the Union finance minister and include all state finance minister. Based on their recommendation the government will have to pass three different bills namely: • Central GST – This will directly replace all forms of indirect tax like VAT, service Tax, Excise Duty, Central Sales Tax, etc • State GST –It will be used by state government to extract revenue from intrastate trades • Inter – State GST – It will be applied on trade between two different states The council is the core institution of the new GST system. The major point of contention for them is the fixation of GST rate. Centre has proposed a GST rate of 27 per cent, whereas, Congress claims that any rate above 18 per cent would be disastrous for the people. Other points of concern are about the goods and services to be exempted from tax, date for extending GST for petroleum, diesel, gas etc. , administrative arrangement for implementing dual GST and mechanism for dispute solving (if happens).

The rolling out of IT platform, called GST Network (GSTN), the National Security Depository Ltd. has to compile the necessary data base for about eight million traders and services provided in collaboration with the Union and State government, and issue each entity a GST ID number for retrieval of all relevant data similar to an income tax PAN card. This is a formidable task but since a bit of the data has already been compiled and verified from the income tax data base.

Additional data regarding nature of business, place of business, bank account details etc. are yet to be complied. Barring unforeseen developments, rolling out of GSTN by 1st april

April 2017 would be challenging but feasible.

Impact of GST Industries: Implementation of GST is most awaited by the country's small-scale manufacturing companies. Currently, if we add up all the taxes paid by the manufacturing firms, it comes up to 25 percent or more.

After GST implementation, it will shrink to between 18 and 22 percent (leaning more towards the lower side), bringing great relief to these companies. The impact of GST seems to impact least to IT and ITES. Whereas industries like telecommunication sector and pharmaceuticals will have a negative impact.

Startups and SMEs: GST is deemed to benefit all businesses in India, but small businesses can specially rejoice because it will ease of starting business, higher exemptions to new businesses, simple taxation policies, reduction in logistics cost and time across states and specially respite for businesses in both sales and services. As per a CRISIL analysis, GST can reduce logistics costs of companies producing non-bulk goods by as much as 20 percent. It is also expected that the companies listed under Make in India would benefit a lot. The average current tax paid by them is 25%-35% which is expected to come down to 18%.

Import and Export: Trade is considered as an important determinant of the economic growth and India being second fastest growing economy would be benefitted in both import and export sector. Exports are specially expected to get a boost as they are zero-rated for taxes and also because of the fall in cost of manufactured goods and services under GST, it will increase the competitiveness of Indian goods and services on 25

in the international market.

Government revenue: Surveys has denoted that the revenue generated by states such as Tamil Nadu, Maharashtra and Gujarat would go down because of their high manufacturing belt. To solve this problem, the central government has offered to pay compensations to all these states for the losses borne by them for the next five transition period. According to the National Council of Applied Economic Research, it is also found that the overall government's tax revenue will increase by about 0.2 per cent while GDP growth could go up by 0.9-1.7 per cent.

globally as a remarkable case in tax reform.

The only dilemma with the reform is to see that whether it will high indirect tax and lowering of the direct tax means enriching the rich and impoverishing the poor or it‘s a win – win situation for both for the government and the tax payers, a situation quite unheard of.

Economy: GST is expected to bring economic integration in the country and boost in GDP growth. It will also push the tax revenue of the government higher to work in a dual way to bring down the fiscal deficit.

The prices are expected to go up initially bringing a minor inflation, but the impact is expected to start trickling down in six months of implementation.

Though implementation of GST aims to bridge the market differences of various states and make the taxation system uniform, it has excluded sectors such as petroleum products, real estate, electricity and alcohol for human consumption. There are still smaller issues to be sorted between central and state governments, regarding the rates and policies, but whenever it happens, it will stand out global 26

MARITIME ISSUES THE SAGA OF SOUTH CHINA SEA

The recent long running act happening between China and its neighbour‘s over resources, sovereignty and security in the South China Sea has grabbed the attention of diplomatic and military leaders from many nations that desire to promote stability and security in these globally important waters.

These maritime disputes in South China Sea have grown more composite and heated given the issues at hand. The six islands China, Brunei, Malaysia, the Philippines, Taiwan and Vietnam though decent and small; they are a vital part of a ferocious territorial dispute.

They also claim their rights and duties in the sea bed underneath and nearby water as well.

But the non claimants want the South China Sea to remain as international waters, with the United States conducting freedom of navigation operations.

These disputes in South China Sea have the ability to trigger a broader regional firestorm.

The claimants also have problems regarding sover

-Srujana Naik

sovereignty not likely to easy legal resolution.

Worse the stakes are high: the Sea being one of the primary routes for international trade, the claimants believe that the Sea hides abundant oil reserves, protein resources and fishing stocks. The South China Sea is an important issue given the fact that there are 11 billion barrels of oil and 190 trillion cubic feet of natural gas deposits under the sea.

Also the waters contain lethargic fisheries that account for 10 percent of the global total.

According to the estimates, every year goods worth 5.3 trillion USD moves through the sea .These disputes are further ingrained by intense nationalism, as each claimant links symbolic value to the South China Sea islands that surpasses their objective material wealth.

The disputes are also influenced by great power politics as US and China bump against each other for control of the international order. The basic plates for international political system are continuously grinding against one another. US and China being on opposite sides of the plate –and perhaps is the history. The US is a sole power of all time, but its legitimacy, credibility, and ability to enforce its will are eroding. The leaders of China believe that China represents future not only in hard power but also in economy culture and values. And hence China‘s leaders believe it is China‘s right to regain its prominence in the region and eventually the world.

Beijing is making an attempt to secure territorial supremacy in South and South East Asia with a historical claim to the South China Sea, which is vigorously contested due to 27

to overlapping claims by countries like Malaysia, Philippines, Indonesia and Vietnam. These claims are in line with UNCLOS (United Nations Convention on the Law of the Sea) and US is not a part of this agreement. Nonetheless, the US has stood by its maneuvers, claiming that "peaceful surveillance tasks and other military activities without permission in a country's Exclusive Economic Zone (EEZ)," is allowed under the convention.

U.S. and the other claimants have been indulged in various conflicts in these waters starting from the year 2011 until present day.

The most common on the list are- the unusual aggressive patrolling by the coast guards, issues regarding oil exploratory vessels and fishing boats of one nation and the navy of the other nation-shots have been fired, Aerial reconnaissance by the US and as demur to this by China in the form of air escort by Chinese jets, construction projects on making of artificial islands and land repossession by the Chinese, holding of joint naval practices by the US and some of the ASEAN nations, Chinese navy drills, UAV monitoring etc.

Also during this period there were three major events that happenedFirstly, In early 2012, Chinese snatched Scarborough Shoal from Philippines. An argument between two states was on for illegal poaching of fishermen. Then after the legal announcement Philippines withdrew but China did not. And taking advantage of this situation China banned Philippines.

Then, In May 2014, disputes arouse between Vietnam and China after the introduction of drilling in to the waters near Parcel islands.

The area which both the nations claimed.

Chinese set its oil rig.

Finally, Beijing has launched an accelerating land reclamation campaign. Also construction of an airstrip capable of receiving military aircraft.

Indian interests in this region are: Geo-economic interests: The new phase of Look East marks a shift from trade with ASEAN to wider economics. Their control over South China Sea would lead to the Strait of Malacca choke point looking at a point of entry into India‘s backyard.

Energy interests: Agreements between ONGC Videsh and Petro-Vietnam include waters claimed by China and Vietnam.

Security: Given the fact that Navy now operates in the Western Pacific, in cooperation with Japan and US, a more safe access to the intervening waters of South China Sea becomes more important.

Currently, China claims large parts in South China Sea and it is necessary to resolve these disputes to maintain peace and harmony. Few of the possible solutions to resolve the dispute would be to impose legal law; equal resource allocation and strengthening the economic ties between these countries. Though the path to satisfactory management of the South China Sea disputes is fraught with peril, they can definitely achieve long lasting regional stability and sovereignty and new approaches to resolve the conflicts should be thought of were nationalistic interest is considered instead of exclusive authoritative power which ensures that the twenty first century does not mirror the conflict and rivalry that dominated the twentieth.

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END OF AN ERA VERIZON WINS YAHOO!

Rise of a new era: After the acquisition of yahoo by Verizon, a deal of $4.8 billion. A core internet search, communication and a digital media providing technical company Yahoo! Started up in January 1994 by two Stanford university graduates Jerry yang and David filo and named it as ―Jerry and David guide to the world wide web― which was then switched to Yahoo!(yet another hierarchically organised oracle). Services like search engine for navigation, yahoo mail providing connectivity, Flickr a photo management and sharing platform, Tumblr, yahoo.com, yahoo messenger, yahoo games and many more are the company‘s product.

In the rush for growth and competition yahoo went through many Mergers and Acquisitions which helped yahoo spread its wings leading to high demand in market, boom in its prices of share and helped yahoo to sail out safely from the dot-com bubble burst but still that affected on it share prices. In pace with the high market demand and trend of expansion yahoo faced a tough competition with Google and as result in 2008 yahoo went through layoffs around the world to manage the economic downturn.

To compete with the internet giant Google, an initiation for merger of Microsoft and yahoo was given a thought but was unsuccessful, yahoo rejected an unsolicited takeover of bid of $44.6 billion in cash and stock made by Microsoft feeling undervalued. And this rejection dragged yahoo into a big legal battle for playing with the shareholders rights for opposing Microsoft takeover bid that was fully

-Shreya Rani

reflected in fall of its stock prices in the market. Ultimately Microsoft moved forward with hostile takeover showing an aggressive approach of Microsoft which was worsening the situation even more, finally on May 3, 2008 Microsoft withdrew its offer as after raising the offer by $5 billion but Yahoo seek a raise of $9 billion, which didn‘t worked and the deal was withdrawn and again smashing the stock prices by 15 percentage disappointing its investors.

In November 30, 2008 Yahoo again received a bid $20 billion from Microsoft for its yahoo‘s search engine business and in July 29, 2009 yahoo gave full access of yahoo search engine ―Bing‖ to Microsoft in its projects with no payment in cash. Which again lead to a decline in stock price by 20 percent that displayed the disagreement of the investors. In 2012 under the CEO, Scott Thompson around 14 percentage of yahoo employees were laid off saving around $375 million annually. Under his leadership the company was re-organised to improvise its performance into four major groups:- a) Consumer b) Regions c) Technology and d) Corporate. In July 2012, Marissa Mayer was placed as new CEO and president of yahoo, who is former executive of Google and corporate director of Wal-Mart and handled almost 53 Mergers and Acquisitions like Tumblr, Flickr, Rockmelt, Distill etc in just a time frame of 4 years. It was July 2013 when in a survey by comScore revealed that yahoo Outperformed Google.

Back in 2011, when many private equity firms 29

firms tried hard to catch yahoo in their court but it fortunately bounced off. But finally this time in 2016 the board of directors were very serious for putting yahoo on sale as it was gradually fading its charisma in this technical world, only if it was given a correct bid. For the list of count there were as much as 40 potential buyer interested in bidding for this 21 years old tech company but not all can be named, players as well as the interested parties that have been named in the press are Alibaba, AT&T, CBS, Comcast, The daily mail, Disney, Google, IAC, Microsoft, News corporation, Softbank, Time Inc, Verizon, etc. are few companies in lime light for acquisition of yahoo.

Out of all Verizon was high on probability as it bought AOL last year for $4 Billion for the further development of its LTE wireless video and OTT(over the top video) performance and has showed high enthusiasm in turning around ailing digital media assets and preparing a path from wireless to IOT(internet of things) for expansion. Verizon was developed in 2000, is one of the largest communication technology companies in the world, which provides different technical services like wireless, global IP network, fibre optics helpful in delivering services like cloud, video, and telematics to enhance the experience networking. It has largest 4G network with a employee base of more than 1,81,000 and operating in 150 countries.

Parties like warren Buffett and the daily mail being interested in buying Yahoo but after a month long process of bidding, valuation, analysis, and negotiation finally Verizon wins Yahoo for $4.8 Billion with more than one billion monthly active users. This deal is expected to be finalized in 2017, first quarter.

Yahoo will now be merged with Verizon-AOL h

headed by an EVP, Marni Walden but it is yet to be finalized whether Marissa Mayer will stay or step aside.

Yet this deal is not satisfactory to anyone and yahoo‘s graph started to decline in 2008 when the co-founder Jerry Yang rejected a lucrative $45 billion offer made by Microsoft. Assets of yahoo‘s operating business will integrated with Verizon‘s other internet acquisition (AOL), which comprises of more than 1 billion monthly active users , a number of ―premium content brands‖ in the area of news, finance and sports , its email services with a base of 225 million active users, and other technological assets like Brightroll, Flurry, Gemini but it does not includes its shares in Yahoo Japan and Chinese giant Alibaba group, Yahoo‘s convertible notes, monitory investments, Yahoo‘s cash, noncore patents and ownership of these assets will remain with yahoo and will change its name at closing by becoming as a registered publicly traded investment company.

Verizon just over a year ago has acquired AOL which helped them to enhance their strategy of providing cross screen connection for the consumers. Similarly, acquisition of Yahoo will take Verizon to a top position of global mobile and media and will accelerate the revenue inflow. The acquisition has given a opportunity to test the full potential of yahoo to speed up in the stream of mobile, video, native advertising and social. This combination of yahoo and AOL will have 25 brands in their pocket for further investment and growth. Verizon has an expectation to grow to 2 billion user and $20 billion of revenue by 2020. And here lies the million dollar question whether yahoo will be helpful to achieve this target in year 2020 or not?

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VRIDDHI RESEARCH BHARTI AIRTEL

―Telecommunication today reflects majestic leaps of human imagination, transcending the limits of time and space. The industry is seeing unprecedented progress in terms of innovation and adoption of new technologies that elevate life in so many different ways.‖

Telecom Industry – A gist • India is currently the second-largest telecommunication market and has the third highest number of internet users in the world • Between FY 07-16, India‘s telephone subscriber base expanded at a Compound Annual Growth Rate (CAGR) of 19.5% to 1,022.61 million and tele density to 80.98 • In September 2015, total telephone subscription stood at 1,022.61 million, while tele density was at 80.98 percent • India‘s telephone subscriber base reached 1,022.61 million in September, 2015 • The wireless segment (97.46 per cent of total telephone subscriptions) dominates the market, while the wireline segment accounts for the rest, making the wireless segment dominate the market highly • Urban regions account for 58.58 per cent of telecom subscriptions, while rural areas constitute the remaining Future potential • The Indian telecommunication services market will likely grow by 10.3% year-onyear to reach US$ 103.9 billion by 2020 • Driven by strong adoption of data consumption, the total market revenue is expected to touch US$ 37 billion in 2017

-Monika Guwalani

• Smartphone subscription in India is expected to increase four-fold to 810 million users by 2021, while the total smartphone traffic is expected to grow 15fold to 4.5 Exabyte‘s (EB) per month by 2021 • The broadband services user-base in India is expected to grow to 250 million connections by 2017, according to GSMA • India added the highest number of net mobile phone subscriptions of 21 million during the fourth quarter of 2015 • International Data Corporation (IDC) predicts India to overtake US as the second-largest smartphone market globally by 2017 and to maintain high growth rate over the next few years as people switch to smartphones and gradually upgrade to 4G • In spite of only 5 per cent increase in mobile connections in 2015, overall expenditure on mobile services in India is expected to increase to US$ 21.4 billion in 2015, led by 15 per cent growth in data services expenditure • The Indian telecom sector is expected to generate four million direct and indirect jobs over the next five years according to estimates by Randstad India. The employment opportunities are expected to be created due to combination of government‘s efforts to increase penetration in rural areas and the rapid increase in smartphone sales and rising internet usage Porter’s five forces model Barriers to entry: The industry being highly cp 31

capital intensive brings with it the biggest barrier to entry is access to finance. To cover high fixed costs, serious contenders typically require a lot of cash. When capital markets are generous, the threat of competitive entrants escalates.

Making financing opportunities less readily available, the pace of entry slows in any industry. This accounts to making the ownership of a telecom license represent a huge barrier to entry as well.

Power of suppliers: Without high-tech broadband switching equipment, fiber-optic cables, and mobile handsets and billing software, telecom operators would not be able to do the job of transmitting voice and data from place to place. With the large number of equipment maker‘s around, there are enough vendors, arguably, to dilute bargaining power.

Power of buyers: With more than 10 telecom players in the market and choice of telecom products and services, the bargaining power of buyers is rising. For most of the part, services are treated like commodities, translating this into customer seeking low prices from companies that offer reliable services. The entire system makes switching costs low for the end consumer transferring the power in their hands.

Availability of substitutes: Products and services from non-traditional telecom industries pose serious substitution threats.

Cable TV and satellite operators now compete for buyers. Railways and energy utility companies are laying miles of high-capacity telecom network alongside their own track and pipeline assets. Just as worrying for telecom operators is the internet: it is becoming a viable vehicle for cut-rate voice calls. Delivered by ISPs - not telecom operators - "internet telephony" could take a big

big bite out of telecom companies' core voice revenues.

Competitive Rivalry: The wave of industry deregulation together with the receptive capital markets lead to a rush of new entrants in the industry. With every individual availing phone services in today‘s world, the competition is cut throat, making all competitors lure customers with lowers prices and attractive services.

About the company Bharti Airtel is a leading global telecom company with operations in 20 countries across Asia and Africa. Headquartered in New Delhi, India, the Company ranks among the top 3 mobile service providers globally in terms of subscribers. In India, the Company's product offerings include 2G, 3G and 4G wireless services, mobile commerce, fixed line services, high speed DSL broadband, IPTV, DTH, enterprise services including national & international long-distance services to carriers. In the rest of the geographies, it offers 2G, 3G and 4G wireless services and mobile commerce. Bharti Airtel had over 342 MN customers across its operations at the end of March 2016.

Key points • Airtel is ranked 1st in India and 3rd in Africa. Globally, it stands at 3rd in terms of subscriber base. It is currently present in 20 countries • It has a subscriber base of 342mn+ across Asia (India, Bangladesh and Sri Lanka) and Africa with 77mn wireless data customers • New mobile subscriptions in India in FY 2015-16 were 25.2mn, making Airtel the fastest subscriber growth in the industry.

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• Airtel won 437 MHz in spectrum auctions in India (Feb 2014 and March 2015) in which Rs 760 BN was invested in spectrum auction and purchase SWOT Analysis

• The company is investing in its operation in 120,000 to 160,000 villages every year.

It sees that rural consumers may only be able to afford a few tens of rupees per call, and also so that the business benefits are scalable – using its ‗Matchbox‘ strategy.

Strengths:

Threats

• Airtel is present in around 20 countries consistently being the third largest telecom operator in the world • The spectrum market share of Airtel has been constantly growing which provides it a large base for increasing customers

• Falling Average Revenue Per User in the telecom industry poses a major threat for Airtel. However, Airtel reported an ARPU of 1,063 during the year, compared to 1,026 in the previous year • Political and economic uncertainties in Africa and India act an unstable base for the business • With rivals like Reliance Jio, Airtel has cut down its data range to about 65% making investors unsure of future earnings • Volatility in currencies remain as Airtel is a largely diversified business

Weakness • Airtel has outsourced operations which have helped in lowering its cost. But on the other hand, they are running the risk of being dependent on some other companies which may affect its operations • Airtel has acquired Zain‘s Africa business, but it is still struggling to turn around the unit which was bought at a whoppy 9 billion dollars. This has also lead to selling of its assets in Africa Opportunities • The company possesses a customized version of the Google search engine which will enhance broadband services to customers. The tie-up with Google can only enhance the brand, and also provide advertising opportunities in Indian for Google • Global telecom and new technology brands see Airtel as a key strategic player in the Indian market. Apple iPhone was launched in India via an Airtel distributorship.

Another strategic partnership is held with BlackBerry Wireless Solutions

Verdict: With current news of Airtel slashing prices of data, investors seem to have shaken the confidence in the company. A major reason for this is entry of Reliance Jio that has lead the telecom sector to witness a downtrend. Also, Airtel is in talks of a merger with Robi in Bangladesh whose impact is yet to be seen.

The analyst gives a buy call only on dips, where it is possible to make profit. For a long term investment, investors should wait for the storm to settle in Airtel and then look forward to it for a long-term perspective.

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FINANCIAL TRIVIA In finance, Black Monday refers to Monday, October 19, 1987, when stock markets around the world crashed, shedding a huge value in a very short time. The crash began in Hong Kong and spread west to Europe, hitting the US. The Dow Jones Industrial Average (DJIA) fell exactly 508 points to 1,738.74 (22.61%)

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