The Dawn of Behavioural Operations
Horse Power or Horsepower
How much Insurance should one have?
July 2010
COVER STORY
Indian Infra Companies :On a Fund Raising Spree Shailesh J. Mehta School of Management Indian Institute of Technology, Bombay
|EDITORS NOTE|
TEAM L!VE
Dear Readers, ARUN KUMAR SINGARAJ
NANDINI MURALIDHARAN
SOMAK CHAKRABORTY
SWAPNIL KUMAR
VINAY RAJ KUMAR MANDAVILLE
Greetings from Team L!VE ! A lot has happened in the past few months; from rate hikes by RBI to introduction of the new Rupee symbol, from ever increasing food price inflation and escalating expenditures on the Commonwealth Games infrastructure to ever worsening profitability of Air India. One of the hot topics of discussion recently has been the rise of Private Equity in India, after the recent global meltdown. This edition contains a number of articles with discerning insights into this issue and analysis whether this will be a sustainable strategy for venture capitalists. The cover story is especially focussed on the fund raising spree of Indian Infra companies, which are expected to grow very fast, with the industry already in an accelerated growth trajectory. Carbon has become a trade commodity in high demand as of late. The Institute of Chartered Accountants in India (ICAI) is working out accounting policies for Carbon Trade. An article is dedicated to this new mechanism of trade and different forms of its implementation. Another of our regular columnists has written about the competitive positioning of India in Clean Developmental Projects by analysing past growth trends. From the marketing domain, we have discussed some emerging trends and strategies in advertising, popularized by innovation and creativity. This edition features interviews with Mr. Prabhat Pani, CEO Ginger Hotels and Mr. Sukumar Narasimhan, V.P., Supply Chain, of Reliance Industries. Keeping al!ve the entrepreneurial spirit, we have an exclusive start-up story of United Prosperity. From this issue onwards we have started a regular column on the Insurance Sector by Mr. Deepak Yohannan, the CEO of MyInsuranceClub.com and distinguished alum of IIM Calcutta. In this edition he has discussed about the optimal amount of insurance cover one is supposed to have. In this rapidly changing economic and cultural geography, evolution and survival of the fittest are the rules of the game. Be it a firm, a small start-up or the world’s largest economy, constant improvement by innovation is the way to move forward. We hope you enjoy reading this issue of L!VE as this magazine continues to evolve for the better. Happy Reading!
Team L!VE
VISHWANATH PRATAP SINGH
E-mail: live@som.iitb.ac.in Website: www.som.iitb.ac.in/live L!VE
July, 2010
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|CONTENTS|
STUDENTS SPEAK 29 | Is PE the next In-Thing for India inc? 32 | Creative Advertising 36 | The dawn of behavioural Operations
06 Issue # 3 / 2010
BIZ WITS
COVER STORY
38 | Quetzal 43 | Answers
06 | Indian Infra Companies: On a Fund Raising Spree
START-UP-STORY
The Infrastructure companies are expected to witness a substantial increase in their order books by around 30-40 % in FY11. Companies are competitiv ely bidding for tenders and their order books indicate that the number of projects undertaken is increasing steadily.
40 | United Prosperity
RESEARCH LABS 12 | Competitive position of India in CDM projects 15 | Will Private Equity continue to be successful in India?
15
FACE TO FACE 19 | Prabhat Pani 21 | Sukumar Narasimhan
EXPERTS SPEAK
CREATIVE BEND
32
44 | Horse Power or Horsepower 46 | The Green Mile
23 | How much Insurance one should have? 27 | Carbon: A new commodity to trade and account 4
SOM-thing Special 48 | CONTINUUM L!VE
July, 2010
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| C O V E R S T O R Y | INFRASTRUCTURE |
INDIAN INFRA COMPANIES: ON A FUND RAISING SPREE The Infrastructure companies are expected to witness a substantial increase in their order books by around 30-40% in FY11. Companies are competitively bidding for tenders and their order books indicate that the number of projects undertaken is increasing steadily. - JASLENE BAWA FINANCIAL RESEARCH ANALYST VALUE NOTES
T
he government has continued its focus on modernization, expansion and development of infrastructure (roads, ports, airports, railways and power) to maintain a steady pace of economic growth at 8-9%. The increased budget allocations resulted in an increase in the infrastructure projects/ orders allotted to private and public infrastructure companies resulting to an increased need for funding the under-
taken projects.
Infrastructure allocations & investments surge With the positive news flowing in to the Infrastructure sector in the form of budget allocations and supportive measures announced by the government, Infrastructure companies have received boost. Financial Budget (2010-11) brought cheer to the Infrastructure sector companies as the budget allocated 47% (Rs.1,786,820
m i l l i o n – i n c l P o w e r/ US$400bn) of the total budget to Infrastructure development. Road transport accounted for a major portion (11%) of the total Infrastructure development budget followed by Railways (9%). The recent announcement of the 12th infrastructure investment plan confirmed the upside in the sector as the investments are expected to double from the existing 11th plan infrastructure investments* (Rs.22,500 billion/ US$500bn) to
* The government invested around ~US$350 billion in the infrastructure sector in the 11 th plan (2006-2010). And the private sector, invested worth ~US$150 billion (- 30% of the total 11th planned infrastructure investments worth US$500 billion). The infrastructure investment target of the 11th plan was achieved with investments in telecom, airports, oil and gas pipelines sector exceeding the targeted figures. Looking at the buoyancy in the past it is expected that the same level or a higher level of investments will continue to flow in the infrast ructure sector in the 12th plan.
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| C O V E R S T O R Y | INFRASTRUCTURE |
Particulars
INR million % of Total
Road
198400
11%
Rail
167520
9%
Ports
19360
1%
Airports
95880
5%
Power
51300
3%
Other Infra (Telecom)
1253820
70%
Total
1786820
100%
Infrastructure spend break up (Source: Budget FY2010-2011 ) Rs.44,500 billion (US$1,000 bn) reinforcing the infrastructure growth story. Of the total investment figure around 40-50% of the 12th Infrastructure investment plan (US$1,000 billion) will be financed by the government and the remainder by the private sector.
Order Book: On the rise The Infrastructure companies are expected to witness a substantial increase in their order books by around ~30-40% in FY11. Companies are competitively bidding for tenders and their order books indicate that the number of projects undertaken is increasing steadily. L&T, HCC, Gayatri Projects, Nagarjuna Construction, GMR Infra, IRB Infra, NMDC, NTPC, etc expect their order books to rise substantially to Rs.2,500 billion (US$55 bn) given the continued buoyancy in the Power, Oil &
Gas and Infrastructure sector. The table indicates the current (F Y2010) a nd exp ec te d (FY2011) order book figures indicating an upward surge in the infrastructure projects. The Infrastructure sector is capital intensive in nature and is
often faced with shortage of funds for project completion. Though the government provided stimulus (working capital needs) to the companies; this was inadequate without private sector participation. This gave rise to a widening gap between the budget infrastructure allocations (resulting to increased orders) and funds for the capital expenditure (working capital needs of these companies). To reduce the funding deficit, infrastructure companies adopted a number of fund raising routes (Debt financing- primarily debt raised via Bank Credit, External Commercial Borrowings ECBs, Non-Banking Finance Companies, etc. and Equity financing via PE – private equity, Qualified Institutional placements, IPOs – Initial Public Offering/
Company name
OB FY10 OB FY11 (INR million) (INR million)
HCC L&T
188000 695000
250000 938250
IRB Infra IVRCL
89590 234000
134925 320000
GMR Infra*
32000
64000
Gayatri Proj
62500
81250
Nagarjuna Const.
153700
199810
IL&FS Trans & Networks
120000
150000
Reliance Infra*
192600
250500
Sadbhav Engg
72000
108000
Current and Expected order book figures *GMR Infra - EPC (Engineering, Procurement & Construction) order book, Reliance Infra -EPC order book
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| C O V E R S T O R Y | INFRASTRUCTURE |
FPOs – Follow on Public Offers, FDI – Foreign Direct Investment, etc.) to ensure smooth completion of their projects.
Finance raising initiatives In order to fund projects, companies primarily approach banks and NBFCs. However, owing to the global financial crisis, the supply of credit to the sector was marred with most of the projects put on hold or delayed substantially. However, during 2009 funds started trickling in the sector with companies‟ increasingly
borrowing debt from domestic banks. Borrowing slowly spread to loans availed from foreign markets as overseas debt could be raised at cheaper rates (loans at 9%-10%) compared to Indian banks. However, the recent European crisis triggered a second round of credit crunch causing an increased dependency on Indian bank and NBFC debts. Debt-laden Infrastructure companies: Infrastructure Companies financials are highly debt laden with mounting borrowing costs. A Major part of the debt (short term in nature) used to
Government plans to invest 11% of its Infrastructure Budget on development of roads.
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fund working capital requirements (in contrast to other industries where debt is used to finance capital expenditure) is also used to finance BOT (build, operate and transfer) projects that typically have a debt/equity ratio of 2:1. This increases their level of the working capital requirements on a regular basis. Additionally, government contracts form a major portion of company order books resulting to delayed realisation of projects. Intensive working capital needs coupled with high gestation periods tend to lengthen the overall capital cycle. This
| C O V E R S T O R Y | INFRASTRUCTURE |
leads to an increased need for working capital resulting to extension of existing loans with no incremental returns.
Debt route With reference to the 12 Infrastructure investment plan Infrastructure companies are expected to raise approximately 50% of the total US$1,000 billion via the debt route. Traditionally, Infrastructure companies raise approximately more than 60%-70% of their funding needs via debt. This has been steadily increasing over the past years with an increased project pipeline. A few examples of debt raised th
BOT project and Panaji-Goa BOT Project). The companies are highly debt laden and are expected to continue on the same path. Adding to existing woes, companies face constraints while obtaining domestic debt re-financing through ECBs (As Indian laws do not permit ECB debt refinancing) further narrowing down their borrowing options. Continuously mounting debt needs (to finance new projects and re-finance existing debt) and the tight situation of global credit availability urged companies to look at options other than debt. As a move in this direction,
Buoyant domestic stock markets since early 2010, assisted infrastructure companies to raise a substantial amount via the equity financing route.
Equity route Funds raised by corporates during Jan – Jun 2010 in the Indian primary markets via IPO and FPO route increased manifold compared to the same period last year. Till date, in Jan – Jun 2010 two Infrastructure FPOs raised a total Rs.100 billion (US$2.0 bn). Overall, Infrastructure IPOs helped raise ~Rs.62 billion (US$1,400 million) during the period Jan – Jun 2010 and
The companies have been able to raise a fair amount of finance via the equity route and are increasingly doing so. The supportive budget announcement to provide a boost to the infrastructure sector has pegged the fund raising momentum in the market. during the recent period are listed below: Hindustan Construction Company (HCC) raised Rs.1,000 million (US$22m) from J&K Bank (The Jammu & Kashmir Bank) for its hill city project – Lavasa. IRB Infra has raised debt worth Rs.25,990 million (US$578m) with a consortium of financial institutions (IDFC, Canara Bank, Bank of Baroda and Union Bank of India) to fund four projects (Pathankot-Amritsar BOT project, Jaipur-Deoli project, Talegaon-Amravati
companies extended their finance raising options to equity financing via primary and secondary stock markets, PE and QIP routes.
through the PE and QIP route the companies raised approximately Rs.1 billion (US$23 m). The tables shows an indicative list of the IPOs, PE and QIP
FPO Name
Amount raised
Amount raised
REC
8.83
192
NTPC
84.8
1850
Total
~ 100.0
2
FPO raised in Jan-Jun 2010 (Source: BSE, NSE, Media Releases)
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| C O V E R S T O R Y | INFRASTRUCTURE |
deals during the period. The companies have been able to raise a fair amount of finance via the equity route and are increasingly doing so. The supportive budget announcement to provide a boost to the infrastructure sector has pegged the fund raising momentum in the market. The companies that raised money through the equity route have received an overwhelming response (from the market with majority of the issues ending with oversubscriptions) laying ground for their peers to follow suit.
Riding the positive wave Riding the positive wave in the market, the infrastructure sector
is abuzz with forthcoming IPOs, PE funding, QIP deals such as HCC plans to raise around Rs.20 billion (US$444m) through an IPO for its unit Lavasa in FY11 IRB plans to raise around Rs.12 billion (US$267m) through a proposed QIP issue. This is in line with its step to support its balance sheet to win big orders from NHAI & State highway projects. GMR Infrastructure stated that PE firm IDFC Private Equity Fund III, and four other investors agreed to invest Rs.4,650 million (US$ 99.63 m) in its unit, GMR Energy. GMR Infrastructure, the in-
frastructure and power subsidiary of diversified GMR Group, plans to raise Rs.50 billion ($1,111 m) via equity route ICICI Venture, the PE arm of lender ICICI Bank, plans to launch a Rs.22,500 million (US$500 m) fund by Jul 2010 to invest in infrastructure projects. Larsen & Toubro Ltd (L&T) plans to launch a PE fund to invest in Indian power and road projects. The fund size is expected to be in the range of Rs.13,500 million (US$300 m). SEW Infrastructure, an engineering, procurement and construction (EPC) company in Hyderabad, plans
Company Name
Amount raised Amount Raised Subscription (INR million) (US$ million) (No. of times)
REC (Rural Electrification Corp)
8825
192
3.1
MBL Infra
1020
23
1.3
Hathway Cable & Datacom
7350
160.4
1.3
IL&FS Transportation Networks
7000
152
33.4
Aqua Logistics
1500
32
1.9
MAN Infraconstruction
1410
31
62.3
ARSS Infrastructure
1200
26
47
SJVN
10790
240
6.6
Jaypee Infratech
22500
500
1.2
Total
~61,600
~1,400
List of IPOs/FPOs during Jan 2010 – Jun 2010 (Source: BSE, NSE, Media releases) 10
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| C O V E R S T O R Y | INFRASTRUCTURE |
Deal Particulars
Type
Amount (US$ million)
Temasek Holdings invested in GMR Energy (GEL) GMR Energy (GEL) raised capital from investors led by the IDFC Group for its energy expansion plans Allcargo Global Logistics (AGL) raised Rs.1,000 million through QIP Helion, Foundation Capital and IFC invested in Azure Power International Finance Corporation (IFC) invested in Husk Power Systems Saudi BinLaden Group (SBG) acquired 20% stake in Maytas Infra for Rs.3 billion
PE
200
PE
103
QIP
23
PE
10
PE
1.3
PE
67
List of PE (Private Equity) and QIP deals during Jan 2010 – Jun 2010 (Source: Media Releases - These are a few selected deals during Jan-Jun 2010) to raise Rs.1,520 million (US$33.7 m) from Jacob Ballas PE. Overall, the deals above are expected to raise Rs.124 billion (US$3 bn) in the near term indicating that Infrastructure companies are actively moving out of the traditional realms of debt and venturing towards new financing options.
story. Source:
Annual report of Infrastructure companies Economic Times Business Standard Budget speech 2011 11th & 12th India Infrastructure Invest-
ment plan BSE, NSE VC Circle website Media Releases
Jaypee Infratech have raised US$ 500 million through IPOs/FPOs during Jan 2010 - Jun2010
Going forward, this will activity gather steam offering PE firms, domestic and global asset management companies a tremendous upside to participate in the infrastructure growth
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| R E S E A R C H L A B S | CDM |
Competitive position of India in CDM projects -Anirban Naskar SJMSOM, IIT Bombay Introduction In the previous issue of „Live magazine‟, I discussed about the implications of climate change on the financial sector. Though climate change will pose a risk to some future businesses too, it will open windows of opportunities for some new businesses also. CDM (cle an de ve lopme nt mechanism) consultancies and carbon funds are a few of those. Implementation of CDM projects brings capital, new technologies and sustainable development benefits to developing countries. In this article, I have analysed India‟s competitive position as a supplier of CDM projects. Methodology I started analysing it from the data published by United Nations Framework Convention on Clim ate Control (UN FCCC). UNFCCC categorises the projects as per the stage of application, the project is going through. I considered only those projects that were accepted by the executive board at UNFCCC.
12
Comparison amongst Countries China hosted 863 projects and India 508, by the time this article was written. Brazil and Mexico are not far behind, implementing 173 and 121 projects respectively. The top contributing nations are shown in the following chart (qualifier: number of accepted projects being more than 40).
These many countries contribute to more than 80% of the total supply of 2234 projects, implemented globally. As expected, countries like India, China, Mexico and Brazil have been in the leading positions in supplying CDM projects. The trend of number of projects in the last three years in these countries is as shown in the graph below.
China started hosting CDM projects lately and hence this industry is still in growth phase there. On the other hand, India, it seems, is already in the maturity phase, at least the data suggests the same. Mexico and Brazil have shown a similar trend like India.
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| R E S E A R C H L A B S | CDM |
Technology Comparison To understand the sectorial drivers of these projects, I classified the projects as per the technology used to abate green house gases.
Type of Project as per
Industries those adopt
technology used
this technology
China
India
Grand Total
Hydro Power
Power generating entities
419
60
479
Wind Power
Power generating entities
220
99
319
Biomass
Waste management firms, new businesses were formed for this purpose only
21
131
152
Waste Heat Recovery
Several small and heavy engineering industries
57
64
121
Methane Utilisation
Coal mines, captive power plants, municipal bodies
34
11
45
Natural Gas Fuelled Power
Captive power plants at various small and heavy industries
20
16
36
Solid Waste Management
Municipal bodies
27
8
35
N2O Abatement
Fertiliser production
26
4
30
HFC-23 Decomposition
Hydro chlorofluorocarbon production
11
6
17
CCR
Cement plant
5
11
16
Waste Gas Fuelled Power
Captive power plants in small and heavy industries, municipal bodies
7
4
11
Reforestation
NA
2
3
5
CFL
NA
3
3
Other Power
NA
11
27
38
Miscellaneous
NA
3
61
64
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| R E S E A R C H L A B S | CDM |
Conclusion and Future Outlook China is leading in popular nonconventional power generating technologies e.g. hydro electricity, wind electricity etc. They have also managed to implement a good number of projects, which utilise methane for power generation like solid waste management and collecting coal bed methane and burning it to generate electricity. India is not far behind in using these technologies. In fact, India has been leading in generating electricity using biomass and bio fuels. It has also shown expertise in thermal tech-
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nologies by utilising heat, which was otherwise being wasted in many industries. Government will be a big driver behind the success of CDM projects. Municipal Corporation of Delhi, India is the first governmental body of India to earn carbon credits through municipal solid waste compost plant in Okhla area of south Delhi. This project is a good example of private public partnership towards greener India. Average reduction in a project in China is 257,000 metric ton of CO2 equivalent per annum, the corresponding figure for India is 83,072. Although
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India is leading in number of projects in some of the technologies, average reduction from a project in those categories is much higher in China compared to that in India. For example in biomass-related-technologies, India has implemented higher number of projects than China has done, but average reduction size in Chinese projects is 3 times that of Indian projects. Government will have to address these areas to create a stage with correct mix of ingredients so that big projects can be implemented in collaboration with multiple parties to reach economies of scale.
| R E S E A R C H L A B S | PE |
Will Private Equity continue to be successful in India?
-Sanjoe Tom Jose SJMSOM, IIT Bombay
I
n India where the situation is characterised by family-owned companies, about 8000 companies listed on the stock exchanges, abundantly available capital, and yet a relative lack of liquidity in the market means that the private equity companies will need to position themselves as partners rather than just fund providers, if they are to become the preferred source of investment capital. The article discusses in detail the dynamics of Private Equity industry in India in the face of factors like importance of regional forces in business strategy, poor governance practices and reluctance to go public. Recent Times Private Equity in India has still not fully recovered from the damage caused by recent financial downturn. Though fund raising had plummeted by more than 70 percent in the first half of 2009 from the peak in the last year, signs of a strong rebound are seen with investors showing renewed interest in the PE industry. Yet it wonâ€&#x;t be as easy as it seems; the price discovery mechanism has been completely shattered by rapid collapse and rebound of equity markets. Further, the credit crunch has made the cost of leverage financing much more expensive and in a market like India where entrepreneurs can be experts at taking your
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money away, PE investors have to be extra cautious.
Still Private Equity has been successful in India, the main reason being the dire need of their service much more than their money. Companies in India have different needs for private capital depending on the type of company and what stage it is at (i.e. growing, seeking acquisitions, family owned, or a large corporate). For example, first generation business builders look for private capital because they gain considerable credibility and governance by having a private equity representative on board. This helps them while bidding for international contracts or attracting good talent.
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| R E S E A R C H L A B S | PE |
than just as fund providers if they are to become the preferred source of investment capital. These companies expect private equity firms to be able to add value, as required, in strategic, operational and human capital matters in addition to their financial contribution. For example, in recent times, private equity firms have been instrumental in finding leadership talent or improving the composition and governance of boards of the companies they have invested in.
Over the years many international companies have tried to establish their businesses here in India by making their executives fly in for three days or so. These employees interact with the same set of intermediaries who show them the same set of investment opportunities at exorbitant prices and hence deals have rarely taken place. In sharp contrast, today private equity companies realize that the only way they can do business in India is by being present on the ground, understanding local markets, working closely with the promoters and taking cues out of local decision making. The Indian Scenario India where the situation is characterised by family -owned companies, about 8000 companies listed on the stock exchanges, abundantly available capital, and yet a relative lack of liquidity in the market means that private equity companies will need to position themselves as partners rather
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A private equity firm with an expert team in India with knowledge of the local environment and operational issues is much more preferable compared to a hedge fund flying in from Singapore or Hong Kong. Many entrepreneurs appreciate being able to have in-depth discussions with their investment partners about a variety of business decisions, for instance advertising, merchandising or hiring. It is not possible with someone who doesnâ€&#x;t have an expert team in India. There also exists a breed of entrepreneurs who are looking for a private equity firm that can play the part of a sounding board rather than giving unsolicited advice. Many entrepreneurs are powerful advocates for private equity; they go out and talk reasonably publicly of the value that their private equity investors have added in helping them build their companies. “Indiannessâ€? of a Company Indian multinationals are increasingly adopting a global business approach while maintaining core Indian values. Equally, many multinationals are becoming de facto Indian as a result of the rising percentages of Indians they employ. One might question whether a company headquartered in the US, with an Indian CEO domiciled in the US and with 8,000 out of its 10,000 employees sitting in India is a US company or an Indian company. For smaller companies with a strong local presence, regional factors are much more important and their needs will rarely be understood by a non -Indian private equity firm. The fact is that as Indian companies grow they must learn to play by different rules, accessing global talent pools, capital pools and customers, but in initial stages they still have to play by local rules.
July, 2010
| R E S E A R C H L A B S | PE |
Labour Diligence (Spencer Stuart, 2007) Another thought worthy issue is how private equity firms spend resources on due diligence. Much of the time spent on “demand diligence” is mostly irrelevant as companies already know there is enough demand and important question is whether the management can actually deliver or not. And to find out the answer they need to spend time on the shop floor for what can be called “labour diligence”. An Indian-based private equity firm is more likely to understand this particular dynamics affecting a typical Indian company, whereas other firms often mistakenly approach investment opportunities with a belief that a model that works anywhere else in the world will work successfully in India. It will not be easy for them to get the balance right between introducing best practices and discarding what is irrelevant unless they have a team of experts who are accustomed to Indian situations. Most of the family-owned businesses have boards consisted almost exclusively of family members and friends. Private equity firms recognise the importance of finding outside directors who can provide the knowledge, expertise and experience necessary to help steer a company through its next stage of growth or towards a public offering. For many companies, the board meeting is purely about compliance and the real debate and decision-making happens outside the meeting. Adjusting to a more rigorous style of board meeting can be extremely difficult for such companies. Private equity firms often play a strong influencing role in helping companies attract talent, commissioning search activity, and helping promoters to interview and assess talent. In the US, the number of senior corporate executives who are attracted to private equity as an alternative and lucrative career step is remarkable. They are either interested in running a portfolio company or becoming an operating partner, bringing their operating experience to portfolio companies and adding value. The same level of eagerness among corporate executives may not be true in India, but private equity firms need to be putting a great deal of energy into finding the right talent to run the businesses they invest in. The patriarch who does not
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want to leave the company, insisting that he should be succeeded by a family member, will not be aware of the 20 other people who could do the job better. Exit Strategy But private equity investments have to go hand in hand with an exit strategy. Investee companies are not always comfortable with this fact. In a country like India it is vital that investors are able to ensure that in case they invest in a technology company, it does not switch to making films down the road. A saying in Private Equity business goes like, „until you invest, the entrepreneur has the vision and you have the capital. Once you invest, he has your capital and you have the vision.‟ Firms have to ensure that the capital and the vision are all stuck together until they are ready for exit. Many times firms come across investee companies who are reluctant to proceed with a public offering because the market has zero tolerance and is unforgiving whereas private equity is seen as more forgiving and willing to take a longer-term perspective. The company realises though it‟s getting patient capital, at some point in the future it won‟t be independent and either it is going to be acquired, or there will be an IPO. But when the potential investor raises the inevitability of an exit, the family businesses which may be open to the idea of taking capital hesitates and this leads to problematic conditions. Indian stock exchanges house 5000-plus companies which have no utility being public; some of these are virtually private companies, except that they happen to be listed. This is borne out by the fact that most of these companies trade their shares once every six months. PEs have to spend a lot of time persuading companies that they need people dedicated to investor relations to educate the market about the company; not just investors in India, but overseas as well. In a market, with a rising tide all boats will be lifted and even if your boat has a hole in it the chances are you will be able to attract capital. However, when the situation changes such companies will be the first to get into trouble. There is a fine line between capitalising on growing mar-
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| R E S E A R C H L A B S | PE |
ket conditions and staying disciplined in terms of valuations. If companies sit on the sidelines the world could pass by them. Also there is a view that in India it can sometimes be harder for a company to raise equity worth US$5 million than to raise US$100 million. At $100m all the big firms are there with their cheques. But people are not interested in US$5 million as it‟s too small a sum to spend time on.
evaluations, creating liquidity and global competence. Private equity is developing into a major player in the Indian economy and there is a growing perception among Indian companies that private equity firms can add value
Major Players Driving the growth in Private Equity segment have been several prominent private equity firms, many of which have opened local offices in India. Goldman Sachs, Warburg Pincus, Blackstone and Carlyle have a significant local presence. Among the larger recent private equity transactions is the US$1 billion investment in Bharti Infratel by Goldman Sachs, Temasek Holdings, The Investment Corporation of Dubai, Macquarie, Citigroup and others in December 2007, along with an additional US$250 million by KKR in February 2008. Sequoia, GLG Partners, Providence Equity Partners, Citigroup, TA Associates and Indiabased ChrysCapital reportedly invested more than US$1 billion in Idea Cellular. Some of the other big PE deals in India so far have been Carlyle‟s $650 million investment for a 5.6 per cent stake in Housing Development Finance Corporation, ICICI Venture Funds Management Co.‟s $800 million investment in New Delhi-based Jaypee Infratech (this was cancelled later on) etc.
ground level the industry will continue to be successful in the coming years.
Reference list Deloitte. (2009). India private equity survey: Long term Confidence February 2009. India. Goodwin Procter. (2008, March 4). Private Equity in India: The Risk, Structure and Reward. Private Equity Informational Newsletter . K, T. (2009, November). Private equity in Asia:
stepping back from the brink. INSEAD Knowledge, November 2009. . Retrieved from INSEAD
Conclusion India needs the industry not only for their funds but also to be a partner in taking the country‟s companies to the next level in terms of good governance, building capable executive teams, improving organisational capability, enhancing
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on several fronts. With more and more companies setting up local offices and teams which work at
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Knowledge: http://knowledge.insead.edu Spencer Stuart. (2007). Private Equity in India: An Executive Roundtable. India. Venture Intelligence . (2009). Private Equity Impact 2009. India.
July, 2010
| F A C E T O F A C E | PRABHAT PANI |
“One should be open minded in
terms of connecting with society, not only as a social responsibility but from the business MR. PRABHAT PANI, CEO - GINGER GROUP perspective too.” Mr. Prabhat Pani is the CEO of Ginger groups. At pre-
sent he is pursuing his PhD from SJMSOM IIT Bombay. TATA Group has always been known for the ethics and values being an integral part of company's DNA. By what means, does Ginger as a TATA company integrate the TATA Code of Conduct in day to day operations ? Ginger Hotels, being a Tata Enterprise, is definitely aligned to the Group Purpose of “Attain leadership through business excellence in the sectors we operate in, while upholding our values and integrity, to improve the quality of life of the communities we serve.” The Tata Group core values are Integrity, Understanding, Excellence, Unity and Responsibility. It is driven by respect for people and nature and passion for the stakeholders. We also periodically evaluate and check our processes for adherence to our Group‟s core values. Group Business Excellence programmes such as the Tata Business Excellence Model (TBEM) and Tata Quality Management Services (TQMS) along with the Tata Code of Conduct ensure alignment to our Group‟s vision and mission. What according to you is the major source of competitive advantage for Ginger? Ginger Hotels started with a clear vision to attain the leadership position in India by offering a fantastic value proposition to its customers based upon intelligently thought-out package of benefits, and by continuously evolving in line with the Customer. Ginger has created a niche for itself in the Indian hospitality sector with 21 operational hotels (nearly 2100 rooms) and 9 more hotels under various stages of development. Apart from continuing to be one of the fastest growing and large branded hotel chains in the country, at Ginger we would like to keep abreast of the changing
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needs of the contemporary travelers. In the recent past, we have accordingly introduced new facilities and services based on customer feedback such as introduction of limited room service so that guests can order a select range of snacks to their rooms. This works well with many of our guests, who typically work late hours or travelling executives, who arrive in late hours to the hotel. Another new offering has been a 40-60 seater conference room in select hotels to take care of training, review meetings, conferences, etc. We are also examining the option of Wi-fi being made complimentary in our hotels. The company has also re-looked at the size of rooms, furniture and other amenities at our hotels. Rooms at Ginger are now plusher with vibrant colours and customer-friendly interiors and furnishings. TATA as a group is focusing on touching the bottom of the pyramid by innovations like Ginger, Nano, Nano housing and „Swach‟. Is it a part of the long term group strategy or just the need of the hour? We may not be in a position to comment about Group strategies. However, Ginger is a first of its kind concept that addresses all the needs of modern day traveler, business or leisure, at value pricing. We do not aim to be the least expensive or compete at price points. Our objective is to be committed in the long run to provide superior product offering, value and a consistent experience in a fresh and simple, yet stylish environment to the customers. Ginger has been a pioneer in affordable hospitality segment in the hotel landscape. What are your views on its growth prospects? Ginger Hotels is operating in a large opportunity space. The hotel chain has a first mover advantage in the branded value, no-frills segment which is still nascent in India. During the economic slowdown
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| F A C E T O F A C E | PRABHAT PANI |
Ginger‟s value offering and wide network found acceptance amongst a large set of travelers. In recent months, Ginger has seen an increase in occupancy by 15-20% vis-à-vis the corresponding period last year, largely due to the focused strategy to tieup with corporate firms and with on-line travel agents. Nearly 40% of our customers are repeat customers. The growth in the network of hotels across newer markets enables a larger set of people to sample the product and hence look at revisiting another Ginger hotel in a different market. This is because they are assured that they will be delivered the same service quality, irrespective of the city they travel to. This growth in hotel network will automatically lead to a growth in the number of guests using Ginger. What are the major challenges which you are facing in the current scenario and how do you plan to overcome the same? Ginger‟s operations have grown manifold (since opening the first hotel in 2004) to 21 operational hotels today. Managing growth in the changing scenario, while delivering the Ginger brand promise is one of the key challenges. One of our big challenges in the early phase was to accelerate the pace of growth, in a scenario where real estate costs were going through the roof. We have managed this by keeping the growth model flexible. In the initial phase, we bought or leased land to build green-field hotels. Now, we are doing things differently – from building a hotel on top of a shopping mall (where lease costs are relatively low) in Ludhiana to re-developing an existing property like the Rail Yatri Niwas (next to the New Delhi Railway station) on a P-P-P model. We are looking at tapping similar growth opportunities in other cities to expand our network. Keeping intact the Ginger value proposition of „nofrills offering at a great value‟, while facing input cost increases (especially on real estate and construction materials) and the impact of inflation on operating costs has given us a great sense of satisfaction. Managing and retaining talent is also a significant challenge. Similarly, a big challenge is to build strong brand equity amongst target customers without spending much.
How do you see the competitive landscape for low cost hotels in next 5 years? Branded budget hotels are slated to be one of the fastest growing segments in the Indian hospitality space. The sector is likely to witness a lot of action with existing players and international brands planning to tap this segment. Ginger is well poised to maintain a dominant leadership position in this opportunity space. What are your views on the role of technology as an enabler to achieve efficiency in business process as far as the Hotel industry is concerned? Advent of technology has been a boon across industries to increase operating efficiencies and scale up growth. This holds true for service oriented entities like hotels which cater to the evolving needs of the customers. For instance we at Ginger Hotels have made significant investments in beefing up technology to achieve greater efficiency as well as offer some services to the customers with convenience and ease. Ginger‟s facilities of providing robust online reservation system, multiple pricing options, self check-in kiosks and Wi-Fi services are all examples of adopting technology to offer superior brand experience and service to the customers. Ginger Hotels has now introduced mobile payment gateway where travelers can book rooms in any of the Ginger Hotels from their cell phones. Over the years we have seen that the contribution of B-school graduates in the Hospitality industry is quite subdued. So, what is your advice to MBA students, who want to pursue their career in the Hotel industry? Hospitality is always a front-facing job – one has to interact with customers and guests at all levels. Therefore, other than being trained and knowing the technicalities of the job, one needs to be able to strike the right cord with the customer. Good conversational skills and the ability to „listen‟ when speaking with guests is always a plus. And of course, a pleasant and forthcoming disposition is expected. Though there are lot of MBA‟s who are actually involved in corporate roles across various verticals including Sales, Marketing, Finance & HR. As told to - Deepak Gupta, SJMSOM, Batch of 2010
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July, 2010
| F A C E T O F A C E | SUKUMAR NARASIMHAN |
“India has a lot to do towards 'greening' itself...Our practices in the industry are also not too much to write home about.� - SUKUMAR NARASIMHAN, Senior VP - Supply Chain Reliance Industries Limited
Currently Sr. Vice President, Supply Chain with Reliance Industries Limited, Mr. Sukumar Narasimhan has close to three decades of experience handling different segments of the Supply Chain both at the Operational & Strategic level. Below are the excerpts from the conversation we had with him: What according to you is the pathway of India's journey towards green supply chain management (SCM)? India has a lot to do towards 'greening' itself. Programs in National Geographic and similar other channels are replete with stories about how we have been continually polluting the Ganges and other rivers. Our practices in the industry are also not too much to write home about. For quite a while, technologies banned elsewhere were allowed into India (eg: Leather Tanning), but I believe it is high time our attitude towards environment changed. The only thing green about India is that many nations are envious about our industrial progress. But as a vibrant nation, we need to embrace greenness in everything we do! What is our current situation? Deplorable would be the pessimistic one word, but on a brighter note, there is so much we can do in so little time! Beginning with waste management at homes, to wastes in industry, I guess there is much we can do! As with everything else, within the Indian ethos, we need someone with visionary leadership to get this program started.
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What is your vision for 2025 in green SCM? Energy from waste, people content with a reasonably good standard of living without too much ostentation, extended forms of family comprising people with similar needs being networked into a composite whole, and finally a realistic approach to beating the numbers on the stock exchange. These are what I believe we need to cultivate as an attitude to keep 2025 yet a peaceful earth for all to live in! As far as Green SCM is concerned, as I mentioned at the Continuum 2010, we need to adopt a lean, mean approach towards the processes and paper in operations. Unless the supply chain fraternity begins collaboration on a wider scale where companies evolve a common network between themselves, as a nation, we will continue to expend more in every dimension than we can really work with. What kinds of risks are associated with going green? What are the initial hindrances? There can be no real risks to going green. The current hindrances and risks are because of the coloured perception we have towards such initiatives - how profitable they can be! The more materialistic we get in our assessments, the less we will be driven towards truly green and sustainable improvements. What are the existing government policies, rules and regulations which are creating hindrances and what changes would you like to see for a better transition to
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| F A C E T O F A C E | SUKUMAR NARASIMHAN |
green SCM? We, as a nation, are still in infancy towards true economic development. When affluence begins to bite at our toes, when there is so much conspicuous consumption, it is then we will begin to assess what we have lost to gain what we got! I sincerely hope like I said before, we learn sooner than other nations that there is virtue in moderate ostentation! What are the prospects of collaboration in supply chain e.g. things like clubbing warehouses and transportation as can be seen in the Telecom industry where sharing of towers has become an industry norm? Asset sharing as a concept in SCM has also existed, like leasing idle plant capacities, but that's where it has stopped. We have outsourcing only in Manufacturing in India, pretty little elsewhere in supply chain. Can more be done? The answer is a definite yes; much, much more can be done. Companies across different industry segments can get together to evolve a combined network of operations that provides synergy to all participants. The tragedy is when we always want to benefit at expense of someone else! What are the global practices that RIL follows? This is a tough question for me as an individual to answer but CSR themes have been fully adopted by RIL, and there are many initiatives we have undertaken to improve the order of things. In the public domain, there are a lot of socially responsible initiatives RIL has launched which makes me proud to be working for the firm! 3PL hasn't been embraced by Indian companies. What could be the reasons and what would enable it in the coming future? A primary reason for 3PL not taking off is because as managers, we dictate the way 3PL needs to work for us. I believe we need to focus on what needs to get accomplished and leave the 'how' of it to the 3PLs. Without exaggeration, I keep repeating that the 3PL story is very similar to the 'mother-in-law/daughter-in-law' syndrome that's by now so famously known! I believe 3PL evolution will run hand in hand with the growth of organized retail in India. It is then, a seamless supply chain will become a sine qua non for the operators and then, the 3PL can perform on a level playing field. Unfortunately, as with everything else, even 3PL maturation will need to be forced than embraced will-
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ingly by us! Have you experienced anything in supply chain which industries take for granted, but it is among the key factors of supply chain efficiency? Oh! This is a stupendous question! There is nothing we need to take for granted, beginning with the simple work protocol we establish as Standard Operating Procedures! But unfortunately, we have all become victims of habit, thanks to the Taylorian theory of Division of Labor! Somehow, this needs to change ground up for us to begin the process of supply chain renewal! What is your daily schedule? Apart from reading what are your other hobbies? What do you do for recreation? When you're pushing 50, you have a distinct flavor to life - need to stabilize and slow down! Some faculties begin to creek and that's when the reality of impermanence begins to sink in. It is then, you begin to philosophize. And that's why you can pick that thread in all my thoughts! My hobbies are to read occasionally and write as well (am planning to write a book or two on SCM!). I love travel, but when work takes precedence, this will have to wait for a little later! Your message to young budding supply chain managers. See money in everything you do. Adopt an inquisitive attitude than having to take things as they are. Continually challenge the limits of performance you set for yourself, and cultivate basic discipline. A combination of all these should land any youngster in good stead! As told to - Nandini Muralidharan
July, 2010
| E X P E R T S S P E A K | DEEPAK YOHANNAN |
How Much Insurance Should One Have? - Deepak Yohannan - DEEPAK YOHANNAN, CEO CEO, MyInsuranceClub.com MyInsuranceClub.com What is Life Insurance? In today‟s world most of us are aware of what Life Insurance means. Life Insurance in a nutshell means a policy that people buy from Insurance Company, which can be the basis of protection and financial stability of the family in case of any unfortunate eventuality (death, disablement). Simply put, Life Insurance is a Protection Tool for the earning member of a family whereby if anything happens to this particular person and his earning stops, then the family should not suffer from financial crisis. Life Insurance is an Insurance of a person‟s life. So, if he were to die, his family would receive an amount of money called the Sum Assured, which would help the family to take care of the financial crisis which would arise from the sudden inflow in income. To get this benefit, he would have to pay a certain amount of money called Life Insurance Premium to the Insurance Company every year as per the contract. Who needs Life Insurance? Buying life insurance doesn't make sense for everyone. If you have no dependents and enough assets to cover your debts and the cost of dying (funeral, lawyer's fees, etc.), then insurance is an unnecessary cost for you. Also, if you do have dependents and you have enough assets to provide for them after your death by investments, property, etc., then you may not need life insurance. However if you fall under any of the following category, then you definitely need insurance: If you have people financially dependent on you
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or if you are the sole earning member for your family, then you need Life Insurance If you have any loan or debt that outweighs your assets, then you need Life Insurance. If you are staying at home and providing your family with such services as child care, cooking, and cleaning, you need Life Insurance If both you and your spouse are earning and you would like to protect a surviving spouse against the possibility of the couple's retirement savings being depleted by unexpected medical expenses then you need Life Insurance If you are a parent and you need to protect your child‟s future against any unforeseen events for your child‟s security, then you need Life Insurance If you have a lot of wealth and assets and you would not like the same to run down by the effects of estate taxes or if you wish to transfer wealth to your future generations, then you need Life Insurance How much Life Insurance cover should one have? Most of us are not aware of “how much” insurance one needs to purchase to protect one‟s family or for his future requirements. Let us understand the factors which influence the amount of insurance cover one should purchase to have a good night‟s sleep. Income Replacement - One of the biggest factors for life insurance is for income replacement, which is a major determinant of the size of your Life Insurance policy. The simplest way to understand it is if you are earning a certain amount every year for your family, then you need a policy which provides for an interest
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earning of an equivalent amount. Currently, a large portion of the income goes to taxes and to maintain your own lifestyle. Hence the income, net of taxes, need to be determined for calculation of Life Insurance Requirement as Insurance Benefits are usually Income Tax free. For example, your Income, net of taxes, is Rs 5 lakhs in a year, then you need „A‟ amount of Sum Assured which if invested as a Fixed Deposit in a bank at 8% interest per annum will fetch an interest of Rs 5 lakhs in a year‟s time. 8% x A = Rs 5 lakhs Or, A = Rs 5 lakhs / 8%= Rs 62.5 lakhs Thus Sum Assured requirement is a minimum of Rs 62.5 lakhs which doesn‟t include inflation so as to ensure that income of the earning member of the family can be replaced by interest earning on the Sum Assured without depleting the actual principal amount.
“...calculating the insurance requirement amount has always been a much debated topic as it is very difficult to estimate the amount of financial loss that the family would face in one’s absence.”
With the constant increase in the cost of education, it becomes an important factor for calculation of insurance requirement. (and possibly a little more to take care of the interest as well). Hence in addition to Rs 62.5 lakhs (from the above example), Rs 14 lakhs + interest= Rs 77 lakhs (assuming Rs 50,000 as interest) need to be added as a loan component for repayment.
Income replacement for nonworking spouses is also an important and often overlooked insurance need. Coverage should provide for your costs for day care, housekeeping, or nursing care. Any net earnings from part-time employment also need to be added to this.
Child Education Requirement - With the constant increase in the cost of education, it becomes an important factor for calculation of Insurance Requirement. The basic school education needs to be considered initially.
However as simple as it may sound, calculating it is not very easy, since there are other factors that need to be added.
Fee per month x 12 months in a year x Number of years remaining for child to complete education is the amount that needs to be added to Insurance Requirement.
Amount of Debt or Loan - is another very important factor while calculating Insurance requirement to ensure that the liability to repay the same does not fall on your dependents. All your debts must be paid-off in full, including car loans, home loans, credit cards, personal loans, etc. If you have a home loan of Rs 10 lakhs and a car loan of Rs 4 lakhs, then you need at least Rs 14 lakhs in your policy to cover you debts
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For example: If the fee is Rs.2000 per month and the child is in 2nd class – Rs 2000 x 12 months x 10 years remaining for the child to complete class 12 = Rs.2.4 lakhs, which needs to be added to Insurance Requirement. Higher Education needs to be factored in separately depending on what you would want your child to study and where and how much you are willing to
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| E X P E R T S S P E A K | DEEPAK YOHANNAN |
spend on his or her education.
Between the Age Group
Multiple of Annual Income
Thus, in continuation with the previous example, Rs 2.4 lakhs need to be added to the Insurance Requirement of Rs 77 lakhs, which equals Rs 79.4 lakhs, plus maybe an amount of Rs 10 lakhs for the child‟s higher education, totalling to Rs 90 lakhs approximately.
20 years – 29 years 30 years – 39 years 40 years – 55 years More than 55 years
20 times Annual Income 15 times Annual Income 10 times Annual Income 5 times Annual Income
Multiple of annual income with different Age Group
Dreams and Goals - All dreams and goals need to be considered separately as it is not a necessity but only a wish of the Life Insured. New house, car, foreign trips, child‟s wedding, etc. would fall under this category. The amount that you wish to spend on such occasion need to be added to the Insurance Requirement, after incorporating inflation For example if you wish to spend Rs 10 lakhs for your daughter‟s wedding 15 years later and the expected rate of Inflation is 6%, then you actually need to add
Rs 23.966 lakhs to the Insurance Requirement instead of Rs 10 lakhs. Insuring Others - Obviously there are other people in your life who are important to you and you may wonder if you should insure them. As a rule, you should only insure people whose death would mean a financial loss to you. The death of a child, while emotionally devastating, does not constitute a financial loss because children do not contribute to the household income. The death of spouse, whether earning or not, does create a situation with both emotional and finanDreams and Goals like New Houses, Cars, Foreign Trips etc need to be added to Insurance Requirement after incorporating inflation.
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| E X P E R T S S P E A K | DEEPAK YOHANNAN |
cial losses and hence needs to be insured. Is Life Insurance an Investment? Many people see life insurance as an investment, but when compared to other investment tools, insurance cannot be really looked at as an investment tool. Certain types of life insurance are referred to as tools for saving or investing money for retirement, etc. These are insurance policies in which you build up a pool of capital that gains interest. This interest accrues because the insurance company is investing that money for their own benefit and is paying you a percentage for the use of your money, much like how banks operate. However, if you were to take the money from the forced savings program and invest it in an index fund, you would likely see much better returns. For people who lack the discipline to invest regularly, a cash-value insurance policy may be beneficial. A disciplined investor, on the other hand, has no such need since he can manage the same himself. Alternatives to Life Insurance Once the total amount has been calculated for Insurance Requirement, the other areas of investment also need to be considered. Property, bank deposits, other savings, bonds, mutual funds, stocks, gold, etc. form asset accumulation, which needs to be subtracted from Insurance Requirement to arrive at the correct amount. Term Insurance, a pure protection tool, suffices most of the requirement in your absence. However an individual‟s situation needs to be considered as only death benefit would not be the answer to all requirements. A mixture of Endowment and Term plan along with other forms of assets would form an ideal portfolio for an individual after considering risk appetite of the individual. Easy Calculation of Insurance Requirement There is a quick calculation without getting into such nitty- grittiest. Multiples of annual income is considered as according to the different age groups. This is a simple and quick reference to calculate the Life Insurance Requirement. Although it would not apply to everyone uniformly, it gives an approximate value for the same.
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Other areas of investment like property, bank deposits, bonds etc also need to be considered Conclusion The topic of calculating the Insurance Requirement amount has always been a much debated topic as it is very difficult to calculate the EXACT amount of financial loss that the family would face in one‟s absence. Hence there has been many ways and means to come to a figure that is somewhat close to the actual requirement. The factors mentioned above, if considered and calculated appropriately, also would yield a result somewhat close to the actual Insurance Requirement. Calculating the actual figure for Insurance Requirement is not possible. Do you really think it is possible to quantify exactly “how much” financial loss a family would face in a person‟s absence? Only when the person is actually absent, the family gets to feel the difference. Till such time, a lot of small aspects of life are taken for granted and are not really valued. Therefore to arrive at a conclusive figure of exact amount of Insurance Requirement depends a lot on assumptions and expected loss. The rate of expected inflation, the future value of money and other factors considered are all on assumptions. Being adequately covered would also ensure a good night‟s sleep without having to worry for the family‟s security. Or, are we putting our families in the slightest of trouble if something unfortunate were to happen? Thus, the above factors and calculation would now help a lot of us to re-value ourselves and find out if we are adequately covered or not.
July, 2010
| E X P E R T S S P E A K | PRIYANKA OTSWAL |
Carbon: A New Commodity to Trade and Account
A
- Priyanka Ostwal, MBA (Finance), M. Phil. Faculty, Amity Business School
lthough India can be termed as a hub for Carbon Credit market, still India needs to work on many issues. In spite of being preferred by most companies in the UK, Germany, Japan and Denmark, India is still not counted among the top three carbon credit nations because of its project rejection rate, which is as high as 50%. Such high rejection rate is due to a shortfall in project performances, changes/ clarifications in the methodology. Despite all these concerns, outlook of carbon credit market remains strong owing to active participation of European Union, rising fuel/energy prices, increase in the number of developed countries ratifying Kyoto Protocol etc. As far as the accounting of carbon credit is concerned, The Institute of Chartered Accountants of India (ICAI) is still working to design proper accounting policies for the same. “Whether the carbon credit issued through CDM projects should be shown as an asset or they should be termed as goods? Carbon credits should be termed as revenue or they should be termed as other income? Is segment reporting possible for CERs? How to value carbon credits?” are some of the issues, still waiting for ICAI new guidelines. The views of taxation authorities would be another interesting dimension.
How to Account for Carbon Credit? Indian companies are generating a good amount of revenues from carbon credit sale. This huge amount becomes material enough to account. But till now there are no guidelines under Indian GAAP. So the Indian companies are following lots of practices to account for the same. Under International Financial Reporting Standards (IFRS), most of the companies are treating income from carbon credit as government grants. And thus this
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becomes a part of income statement on one side, and as a corresponding debit on the other side, it is treated as an Asset (Intangible Asset). But there are a lot of controversies over this accounting treatment. For a critical evaluation let‟s check out these issues:
Is Carbon Credit an Asset? The definition of an Asset given by Accounting Standard 26 (AS-26) is: An asset is a resource: (a) Controlled by an enterprise as a result of past events; and (b) from which future economic benefits are expected to flow to the enterprise. An intangible asset is an identifiable non-monetary asset, without physical substance, held for use in the production or supply of goods or services, for rental to others, or for administrative purposes. Carbon Emission Reductions (CERs) fulfill all the criterion of an intangible asset except that it is not held for use in the production or supply of goods or services. This indicates that CERs cannot be termed as Fixed Asset, and it is out of the scope of AS-26 (Intangible assets).
Is Carbon Credit an Inventory? Second method to account these CERs can be to show them as inventory (AS-2) AS-2 defines Inventories as: Inventories are assets: (a) held for sale in the ordinary course of business; (b) in the process of production for such sale; or (c) in the form of materials or supplies to be consumed in the production process or in the rendering of ser-
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| E X P E R T S S P E A K | PRIYANKA OTSWAL |
vices. Inventories need not be in tangible form, it can be intangible also. CERs fulfill all the above requirements and thus can be termed as inventories. Thus, If CERs are held in the business for sale in the ordinary course of business, they can be termed as inventory (IAS2), if not they should be considered as identifiable nonmonetary intangible assets.
How to Value CERs? So far, we have concluded that CERs may be termed as Intangible inventories. So the valuation criteria will again be according to AS-2, which says to value inventories at cost or net realization value, whichever is lower. The only cost which brings CERs into existence is the certification cost of CERs. All the other costs are either not relevant or they have incurred before CERs came into existence. That means in the books of accounts, CERs should be shown at their certification cost, but in that case there will be a significant mismatch between cost and revenue of these inventories. This is because entities would need to expense most of their costs as soon as incurred but will recognize revenue arising from CERs only when these are actually sold. So, the valuation criterion of carbon credit is again a problem.
Is Carbon Credit a Contingent Asset? From the above discussion, we can say that Carbon Credits are a part of assets of a business. But again the problem is, CERs are a kind of contingent assets (defined in Accounting Standard-29) as that “arises
from the past events and the existence of which will be confirmed only when the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of the enterprises” (when project gets approved by the authority). Because of this reason, CERs (a contingent asset) can not be shown as assets until and unless communication for credit of CERs from United Nations Framework for Climate Change (UNFCCC) is received and provided it is probable that future benefits associated with CERs will flow to the entity and costs to generate CERs can be measured reliably. Thus, CERs can be termed as “Contingent Asset”.
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Carbon Credit should be termed as Sales or Other income? Section 43A(11) of the Companies Act, 1956, defines „Turnover‟ as “the aggregate value of the realisation made from the sale, supply or distribution of goods or on account of services rendered, or both”. Again part II of Schedule VI to the Companies Act, 1956, requires a separate disclosure of “profits or losses in respect of transactions of a kind, not usually undertaken by the company or undertaken in circumstances of an exceptional or non-recurring nature, if material in amount”. Sale of carbon credit is on non-recurring basis (though some exceptions are there). Thus, it can not be termed as „Revenue‟. Again, CDM projects are not cost centers in themselves and thus making it impossible to work out separate profit or loss of any CDM project with accuracy. The combined study of Section 43A (11) and Schedule VI of companies act shows that income received from sale of carbon credit should be a part of other income not Sales. If amount received from sale of CERs is significant, they can be shown as a separate line item under the head “Other Income”.
Is Segment Reporting possible in case of CERs (AS-17)? According to some experts, CDM project (duly approved by UNFCCC) should be looked as a separate segment for segment reporting as per AS-17. And the Capital Investment, Sales and Profit earned by these projects should be shown separately. This is not practical as CDM projects are not either a profit center or a cost center in itself. It‟s a multi segment entity and can be identified with its parent entity only.
References:
http://unfccc.int/2860.php http://www.cdmindia.nic.in http://www.thehindubusinessline.com/2009/10/01/ stories/2009100150370900.htm http://www.nlsenlaw.org/copy_of_news/accounting-debateson-carbon-credits http://www.icai.org/ The Accounting Debates on Carbon Credits: D Murali, Business Line, October 16, 2008 “Carbon Credits: How Big is your Foot-print?”: Pradeep
Kumar Gouda, N Rajashekhar, L!VE Magazine, SJMSOM, IIT Bombay
July, 2010
| S T U D E N T S S P E A K | PE |
Is PE the next InThing for India Inc.? -
Swapnadeep Bhattacharyya SJMSOM, IIT Bombay
I
t is evident across geographies that private equities create positive impact on the companies they fund and on the overall economy of the country they operate in. Increase in sales and profitability of the parent company and growth in employment are some of the tangible benefits that the PE funded companies tend to gain. India Inc. weathered the current financial crisis steadily to register a 7% growth in GDP even in the troubled times. PE is increasingly being recognized as the vital asset class in India which can fuel infrastructural development in India to support this robust growth that the India economy is going to witness in the recent future. The 2010 fiscal is witnessing an increase in PE funding, following a decrease in PE deals in 2008 and 2009. India has a robust VC/ PE industry with USD 32.5 billion
invested across more than 1500 VC/PE deals from January 2006 till date. A study conducted in 2009 by Venture Intelligence found that PE boosts the Indian economy by creating value for corporate India. This is through higher growth in sales and profitability of PE funded
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companies; higher R&D spends which fuels greater innovation, and higher wage payment as compared to non PE funded companies. The key findings from the study are presented below. The economists world over have estimated that India needs about USD 1.3 trillion dollars of
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Often, PE is chosen because long-term risk capital is not available elsewhere, due to underdeveloped equity markets. Sometimes, PE may be taken as a substitute for long -term debt because public and private borrowing channels may be underdeveloped or unavailable . investment over the next three years to sustain a GDP growth of over 7%. This implies that there is a requirement of USD 60-100 billion of VC/PE investments over the next three years. Approximately, PE investments can be in the range of USD 9-10 billion in the year ending December 31, 2010. The graphs show that PE backed companies perform better than Sensex companies owing to better operational and fiscal discipline. What is to be understood is that PE is essentially a financial transaction. Often, PE is chosen because long-term risk capital is not available elsewhere, due to underdeveloped equity markets. Sometimes, PE may be taken as a substitute for long-term debt because public and private borrowing channels may be underdeveloped or unavailable. In India, the sources of longterm debt capital from public markets are limited due to the relatively nascent stage of Indian debt capital markets. On the other hand, Indian equity capital markets, which are well-developed, are primarily accessible for more mature companies than those that need PE. In developing countries like India, the impact of PE funding may well be even more significant. There are several reasons. Firstly PE fund is the much needed capital for private companies. Secondly, PE can help Indian companies by providing expertise in creating organizations that are both well positioned for global growth through specialization in the supply-chain,
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and adapted to local management talent, ownership structures and needs. Now, we will try to analyze the impact of PE funding on some Indian companies in particular and some industries in general. Impact of PE on Air Deccan: The PE investment in Air Deccan brought both operational and fiscal discipline. PE firms helped setup a proper organization structure and created a formal business plan. The financing enabled Air Deccan to pursue its aggressive
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business model of budget airline.
running a
Impact of PE on the Aviation Industry: Air Deccan had a big impact on the industry. Its no-frills flights, focus on second-tier cities, and aggressive pricing led to aggressive growth and spurred the entry of comparable budget airlines. Its practices were imitated by established competitors and became part of industry practice. The result was a fall in the average cost of air travel in India. To a significant extent, these new business approaches were enabled by the
| S T U D E N T S S P E A K | PE |
initial round of funding and the models that were introduced by PE financiers seeking to imitate the success of budget airlines in other countries. Impact of PE on Café Coffee Day: The primary impact of the PE investment was operational. Firstly, the PE funding enabled the company to hold on to market leadership through expansion and provision of value-added services such as Wi-Fi. Secondly, the PE investors played a role in improving corporate governance and helping to recruit the CEO. Thirdly, they helped the management think through alternative revenue streams to complement the core business model of selling coffee. Impact of PE on Meru: India Value Fund‟s (IVF) investment in Meru was unusual for PE because of the relatively early stage at which funds were committed. The taking of a majority holding was also not typical of India, though more akin to the western model. The difference with the western model was that the management of Meru was retained and strengthened. The impact on Meru is evident. The Meru brand has become synonymous with air-conditioned radio taxis. Without PE investment, the company‟s professionalism and development trajectory would have undoubtedly been slower; technological sophistication would likely have been lower, as well. The combination of these two factors is that Meru is not just the largest taxicab operator in India, but its most technologically sophisticated too. Impact of PE on the Education Sector: Higher education, a recent
growth leader in India, is a difficult field for PE investment owing to the legal requirement that providers of degree-granting institutions are not permitted to earn profit. It is estimated that, despite the industry‟s growth rate in technical fields of over 40 percent per annum between 2005 and 2009, PE investments are less than USD 300 million. PE has, therefore, looked to fund ancillary services that leverage brand names. Given the newness of the private higher education sector, Manipal Universal Learning‟s success in using PE funds to finance for-profit services established a paradigm shift. Impact of PE on Naukri: ICICI Ventures invested in Naukri at a time when the Internet bubble was at its peak. This PE firm provided strategic support covering a range of functions from corporate governance to financial discipline, and to business focus. The Management ascribes its phenomenal growth (from INR 0.25 million to INR 2,700 million in 11 years) to PE funding. As a result, Naukri
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continues to dominate the market and is a profitable company. The PE investment enabled Naukri to set the standard for digital service in job search. In conclusion, one may state that PE capital is „smart money‟ and that PE firms contribute towards the growth and success of their investee companies. The portfolio companies are typically SMEs. New management helps bring in new business ideas and models. High standards of corporate governance have typically not been an area of focus by such companies until the PE investment. In response, several PE firms are adopting the western model and are now building separate operating teams to support their portfolio companies. This should bring increasing benefits to the portfolio companies and help further demonstrate to the Indian business community that PE capital, although expensive, is indeed ‟smart money‟.
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| S T U D E N T S S P E A K | ADVERTISING |
-
A
200 words ad in a leading national newsp a p e r… C o s tRs 10,000. A 10 second video commercial in any channel… Costmore than Rs 1,00,000. Sponsoring a big scale event…Cost- more than Rs 10,00,000. As the scale of advertising increases, so does the number of zeroes in the cost. Why do people spend so much on advertising? A rather silly question with a rather obvious answer. What can be the alternative way of advertising? People are so much in love with the conventional ways of advertising that they fail to experiment. They are threatened by the fear of failure. This human phenomenon leads to stagnation and lack of innovation.
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Palak Kumar & Arun Kumar K G
If you look around with open eyes, there can be a whole lot of new methodologies to advertise. Apart from the traditional ways, there are other cost effective ways of making the customer aware of the product – like advertising on poly bags. Poly bags are used by almost all retail outlets. But both the sides of the poly bag carry an advertisement of the shop that it belongs to. Product manufacturers can try and capture one side of the Poly bag to advertise their product. For example, a Big Bazaar poly bag can carry the latest offer or ads of Woodland shoes on the other side, not only making it more attractive but economical as well. We will revisit this idea in detail in the same article later on.
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SJMSOM, IIT Bombay We learn different concepts in marketing like market segmentation and targeting the right customer base. But we forget to use the science of basic human psychology while trying to advertise. Why would a person buy XYZ product? How can we make a customer happy as well as allure him to our product? Can a TV commercial do that? Or that black and white text in a newspaper? Or is it the sponsorship of a cricket match that can help achieve that? The truth is that NONE of them can. They can only make a customer aware of the product. Advertising is not just making a customer aware, but also influencing him and attracting him to your product. We should try and
| S T U D E N T S S P E A K | ADVERTISING |
Most of the advances in advertising in recent times have been made in the online media...Social networking sites are the most powerful online advertising media today. You can target a wider market at a much lower cost. find ways of advertising by means of which we can provide some value add to the customer. A free gift can make a person happy. For instance, a Complan logo can be printed on an eraser or a pencil and distributed free on the billing counter of every modern retail store. Children are the ones who will be using these freebies and in turn demand the product advertised-Complan. A Nike ad can be superimposed on a keychain and given free with every shopping bag. Similarly a Dell Inspiron etched pen can be given free with every bill above a certain limit. The benefits of this type of advertising are unlimited- modern retailers like Big Bazaar, Reliance Mart would be more than happy to distribute these freebies as it will increase their customer retention. The advertisers will be happy to have their product advertised by spending less on such small gifts that could be purchased in bulk at dirt cheap cost. And finally, the customer will be happy and satisfied for having received the freebies. There is a value addition for everyone. Mostly the customer, who would be more impressed by the advertisers for having received a free gift, rather than just watching a commercial!! These are just some of the non -traditional advertising methods, which are becoming popular day by day. The basic idea behind such campaigns is to connect with the target audience at a much deeper level by giving them an
experience that they can‟t forget easily. This concept was taken to another level by companies such as Sony, and T-Mobile. The three minute guerrilla style advert entitled „Dance‟ is part of T-Mobile‟s „Life‟s for Sharing‟ campaign. This commercial manages to uplift with this ad with what seems like an entire train station of London commuters spontaneously dancing together (400 people were in on the commercial gig). They really drive it home with the tagline "Life's for sharing". According to Lysa Hardy, Head of Brand and Communication, this campaign allowed them to let people learn a bit more about T-Mobile as a company on a more emotional level. Another innovative ad which caught our attention recently was a Mr. Clean advertisement. It is another classic example of guerilla marketing, which tries to capture your attention when you are least expecting it. This kind of advertising uses a surprise effect to tantalize the viewer when they are in a situation where they would not typically find media. Most of the advances in advertising in recent times have been made in the online media. How many of us are present in Orkut, Facebook or Twitter? The answer is pretty obvious. Social networking sites are the most powerful online advertising media today. You can target a wider market at a much lower cost. The flexibility and the scope for innovation is higher in online advertising. Flash mobs show the power of social and other
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telecommunications media in reaching across to a varied and dispersed audience and bringing them together to perform a well coordinated act. By definition, a flash mob is a large group of people who assemble suddenly in a public place, perform an unusual and pointless act for a brief period of time and then quickly disperse. The term flash mob is generally applied to gatherings organized through telecommunications, social media and viral mails. It is not applied to events organized by PR firms or publicity stunts. Just to add, these developments do not occur all of a sudden. They often have continuous growth or development over long periods. So what are the advertising trends in 2010? If you look at the advertising trends of 2009, you would see that many companies are investing on green marketing. In addition, we can see the same trend growing in a bigger way in 2010. Especially if you look at car branding, many companies are coming up with environment friendly cars that run on alternative fuels. Many experienced marketers think that Going Green is not just a fancy trend any more. People have already started believing in this concept and the immediate need of taking some action. Today it is not enough that you advertise the Go Green concept. You must add a comprehensive story and show that your business or organization is actually supporting the cause. IBM‟s smarter planet campaign is an
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| S T U D E N T S S P E A K | ADVERTISING |
Mr. Clean advertisement is another classic example of Guerilla marketing. excellent example of branding itself as a socially responsible corporate as well as an excellent employer. The overall advertising environment in 2009 was fairly gloomy with slashed budgets and revised strategies to address the new reality. However, that didnâ€&#x;t stop the industry from evolving, and the lessons learnt are likely to pay-off in the year ahead. For example, advertisers started looking at the need for accountability metrics and campaign-specific performance. They also started to embrace burgeoning social networks and consumer generated media to bring consumers closer to a product or brand. The Nielsen study has come out with the top 5 advertising trends for 2010.
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Top Advertising Trends for 2010 1.Optimizing media convergence is a top priority. A better understanding of media convergence will manifest in order to deliver a better return on investment. The ability to accurately measure activity and link online ads to offline purchasing behavior will be critical. 2.New models emerge to take advantage of smartphones. Accurate mobile measurement will be required to stay ahead of the snowballing growth of the media platform. 3.More cross-media ad campaigns surface. The massive growth of online video games played and shared online leads the
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way for more successful interactive and cross-media advertising campaigns to appear. Growth in the adoption of this innovative advertising across screens and activities will increase. 4.Commercialization of social networking hubs increase. Social media will provide a new sales channel for establishing product awareness and commercializing brands to better support traditional advertising or text-based ads. 5.More interesting and interactive online ads appear. Increased use of more creative advertising and content models online such as video, attention-seeking page takeover ads and mechanisms for
| S T U D E N T S S P E A K | ADVERTISING |
A better understanding of media convergence will manifest in order to deliver a better return on investment.
greater interactivity will drive the next era of Web development. Given such global trends, we have to analyze the way ahead. Is jumping onto the global bandwagon the only way forward? Think again. ITC is a company which has undertaken a lot of effort to reimage itself as a socially responsible company. They use the space in the notebooks produced by them to convey social messages such as global warming and also they advertise their own social campaigns. Why canâ€&#x;t we take such ideas to an entirely different level? Earlier we talked about advertising through poly bags. Stores used to use this medium to brand their store names. But, both the
stores and the product companies can benefit by collaborating in advertising on the bags. If the companies invest a small portion on such advertisements the cost of
ITC is a company which has undertaken a lot of effort to reimage itself as a socially responsible company. They use the space in the notebooks produced by them to convey social messages such as global warming. poly bags can be covered easily. This will not only increase the visibility of such products, but also increase the sales in such stores. This mutually beneficial plan can be extended to a socially beneficial
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one by introducing bio-degradable polybags. As such biodegradable poly bags cost more, thus preventing the large scale use. If companies and stores take this medium of advertising seriously then we can eliminate poly bags to a large extent. This could be the one ad campaign which the world was waiting for. Just give a thought to the scale with which we can affect our society and environment through such innovative ideas. It just requires some exercise of our brain and more importantly, the will or capability to break the traditions and think beyond the obvious. Marketing constraints during the time of this recession can provide the much required stimulus to force us to innovate and innovate!
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| S T U D E N T S S P E A K | OPERATIONS |
f o n w a D The al r u o i v a h e B s n o i t a r e Op
- Somak Chakraborty SJMSOM, IIT Bombay
T
he terms Behavioural Finance or Behavioural Economics are perhaps more common terms than Behavioural Operations. However, it has the same implications in this field where human beings are critical to the functioning of the systems and processes. The inherent nature of the human beings prevent them from being rational and thus induce inconsistencies in the systems, from what is predicted by theoretical studies and research. Thus incorporation of this critical aspect of human behaviour is essential in the modelling of systems in operations as well. The performance of a system is definitely based on inputs, processes and efficiency of those processes, but the skills, discipline and responsiveness of the people involved in those processes do play a pivotal role in giving superior system performance and output. As in any other primitive theoretical base, core Operations Management principles assume that people involved in the systems have consistent responses, consideration for all possible alternatives and unbi-
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ased evaluation. The decisions and actions in a constrained environment, aiming to improve productivity and/or quality of any system comprise what we call as Operations Management. Due to the constantly changing nature of the macro environment, policies and forces of supply-demand, it is almost impossible to put in place a fully automatic management system, seamlessly integrated to incorporate such nuances and which will keep optimizing the output. If it was in place, it would eliminate the need of an Operations Manager. However, major tactical and strategic decisions in this regard still lie with human beings and are often found out to be much more economically feasible. Since such a system is far from perfect, improving a system involves, responding to intricate problems, managing uncertainty and risks and often, experimentation, empirical analysis and live case studies. Given its receptivity to such human inputs, it is apparently surprising that behavioural theories have not been incorporated in this field of study for biases, which arise from cognitive limita-
July, 2010
| S T U D E N T S S P E A K | OPERATIONS |
tions of the human mind. Estimating the nature and magnitude of such biases can give us a clearer picture and more holistic assessment of Operations in any field and make Operations Management models more practical. The whole rationale behind incorporation of "human" factors in Operations Management is a better understanding of contemporary problems and finding out more practically relevant solutions for the same. The initial works by Frederick Taylor in the field of industrial management did involve some behavioural connotations as in providing monetary incentives as a means of improving labour productivity. Though the study is outdated, it provided some valuable insights in affecting systems output by modulating behaviour with the help of incentives. The study can be extended to incorporate the nature of incentives, since later studies have shown fairness, respect, recognition etc. to be very powerful incentives as well. Inventory Theory is a popular subject of mathematical research and quite a bit of advanced research has been done in this area which has resulted into very complicated models. However, very few (or none) models take into account risk avoidance versus risk taking behaviour of the manager in charge of inventory management; the inter departmental confidence in the organization like that of between Sales & Marketing and Supply Chain which greatly affects forecasts and subsequently inventory. Moreover, forecasting is often affected by recent events than past ones and phenomenon like overconfidence, bias etc., which distort the results of the models from practicality. MPS and MRP models are often subject to rescheduling. This is highly a function of risk avoidance nature of customers. If we can quantify or predict these changes with reasonable certainty, lesser rescheduling will take place, which will in turn lead to cost savings and optimum capacity utilization. Product Development and Project Management are areas which require decision making in uncertainty and constant updation of prediction and forecasts, based on past data and/or competitor’s data for similar products and projects. Since predictions do
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depend on anchors (initial estimated values), the bias in the subsequent forecasts is a direct function of the anchors. This largely affects the timeliness and cost projections of the product or project. The ‚Bullwhip effect‛ in supply chain has been explained by many mathematical and causal models. It can also be explained by considering human cognitive limitations and lack of a proper integrated channel of communication in the supply chain, which distorts available information at each upstream stage. Issues such as organizational structure and communication of the firm in context do affect management of operations in that firm to a certain extent too. Problem in implementing innovation in supply chain or manufacturing, at the onset is again a behavioural factor that relates to resistance to change or shifting to a new learning curve. Even technology implementation has to face difficulties due to cognitive biases. TQM implementation is another instance where behavioural factors play a decisive role. Attribution and evaluation of sub optimal components has a major human component involved in it and is prone to attribution bias. Setting quality benchmark and evaluation of improvement in quality is often subjective and judgemental in nature, more than being a function of quantitative structural factors. The behavioural aspect in implementing research in management practice is, in itself, an empirical proof of expectancy mismatch between the OM researchers and OM practitioners.In a nutshell, multi-pronged approach is required to effectively understand real life issues in Operations Management today. This must ensure that we incorporate psychological, social, environmental and systemic factors when we go for modelling. A probable start will be to understand behavioural factors that can be effectively incorporated in the feedback loops that influence system performance. Subsequently, multiple factors can be included to further develop the models.
Reference: “Toward a Theory of Behavioral Operations" by Francesca Gino & Gary Pisano, 2007
July, 2010
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| B I Z W I T S | QUIZ |
Quetzal
(Contributed by Ujjayan Sen Gupta, SJMSOM, IIT Bombay)
1. Connect:
2. This word had its origins in the death and destruction of WW2. It was RAF slang for a particular kind of bomb but is used in a totally different sense in the movie industry nowadays. What is this word? 3. This Brazilian player, Manuel Francisco dos Santos was born with severe physical disabilities but grew up to become a part of one of the finest Brazilian teams to ever play football. He was known by his nickname____ which means wren, a little bird. Due to his immense popularity in Brazil, he was also called Alegria do Povo(Joy of the People) and Anjo de Pernas Tortas (Angel with Bent Legs).Can you identify the player by his most popular nickname? 4. Movies: W, a fine actor was desired to play a role in X, but was offered Y the same year and he ended up taking the latter role. He eventually lost the Best Actor‟s Oscar that year to Z who played the role of X in X. Name W, X, Y and Z. (Hint: There is an India connection to one of these films.)
5. At the 1966 FIFA World Cup, Antonio Carbajal, the Mexican goal keeper created the record of playing in 5 different World Cups from 1950-1966.His record of playing in 5 World Cups was equaled in 1998 by another player who played from 1982-1998. Who is this famous player who even won the WC during this stint.
6. The advertising campaign of this company has often been controversial. Some of the ads included de-
pictions of a variety of 'shocking' subjects such as a deathbed scene of a man (AIDS activist David Kirby) dying from AIDS; a bloodied, unwashed newborn baby with umbilical cord still attached; two horses mating; a collage consisting of genitals of persons of various races; a priest and nun about to engage in a romantic kiss, pictures of inmates on death row, and picture of bloodied, shot up pants and t-shirt of a soldier killed in Bosnian War. The company's logo served as the only text accompanying the images in most of these advertisements. Identify the company.
7. In India, Where would you be posting a letter if the PIN Code started with a 9? 8. The Kármán line, named after Theodore von Kármán, is the internationally designated boundary of what?
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| B I Z W I T S | QUIZ |
9. Andres Escobar Saldarriaga, a Columbian defender became headline news during the FIFA World Cup 1994. Can you say why? 10.This term, used in the management parlance, originated from the process of chiseled horizontal marks that surveyors made into which an angle - iron could be placed to bracket a leveling rod, thus ensuring that the leveling rod can be accurately repositioned in the same place in the future. These marks were usually highlighted with a chiseled arrow below the horizontal line. Which term? 11.”YAMU PANCHAYAT” is a shop in New Delhi which is unique in its own way. Why is it unique? 12. The yubiwa pipe, a finger ring that would allow the wearer to smoke a cigarette down to its nub, was the first successful product of a well-known company. The profits from the yubiwa pipe were used to develop an electro-mechanical gadget that has made this company famous. Name the company. 13. The gentleman holding the FIFA World Cup trophy aloft once described it using these words: "The lines
spring out from the base, rising in spirals, stretching out to receive the world. From the remarkable dynamic tensions of the compact body of the sculpture rise the figures of two athletes at the stirring moment of victory". Identify the person.
14. The Oxford English Dictionary dates the first publication of the word to 1825. The origins of the word are unknown, but researchers believe the word stems from a Latin word which means “utmost deliciousness.” Food writer Harold McGee claims it to be “from the Creole for a mixture of sugar and molasses”. Identify. 15. An invention in the late nineteenth century when looked from the side had a resemblance to two coins, one leading the other. It got its name from these two coins. What invention are we talking about? 16. Each bottle of which alcoholic brand bears a stamp of its originating country to ensure that each bottle is “truly ________in spirit & authenticity”? 17. Which scheme came into picture when two Indian banks failed in 60‟s, while at that time India was the only second country to introduce that scheme, first was the United States. Which scheme am I talking about? 18. Incorporated on December 24, 2003, it operates the first-of-its-kind category of „Smart Basics‟ which was launched in June 2004, the Smart Basics concept created a revolution in the world of Indian hospitality. The first of the Smart Basics hotel was launched in Bangalore and was called IndiOne. How it is known today? 19. He was a retired flight operations manager at Indian Airlines named Mr. Harpal Singh. He got something first from the Iron lady of India. What am I talking about? 20. To advertise its company‟s product, the owner encouraged his franchisee to take to the air waves with their own campaign. Following its directive, two franchisees decided to target kids by sponsoring a local children‟s show, Bozo‟s Circus. When the station cancelled the show after 4 years, the franchisees hired a television announcer to create a new clown persona for local ads. It marked the birth of which legendry icon?
Answers are on page 43
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| S T A R T U P S T O R Y | UNITED PROSPERITY |
Introduction: UnitedProsperity.org (UP) is an internet-based non-profit organization that was established to help lift poor and near-poor people around the world out of poverty using microfinancing initiatives. UP was launched in June 2009 by Bhalchander Vishwanath when it partnered with a large bank in India, and Ajiwika, an MFI that worked with the poor in one of the poorest states of India. UP‟s mission is to empower individuals to provide a compassionate and impactful microloan guarantee that multiplies into a bigger loan to poor clients. These microloans are made to lowincome entrepreneurs, mostly women, who would not otherwise have access to banking and financial services, to help them start or grow their own small businesses. The idea of individuals all over the world becoming „social guarantors‟ for the purpose of making loan guarantees is an innovative approach to tackle extreme poverty. To date, UP has raised around USD 70,000 in loan guarantees from individuals in more than 20 countries. As a result, more than 650 entrepreneurs have received around USD 130,000 in loans. This scheme makes an immedi-
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ate impact by increasing the income of the families who take part in it. Moreover, since Ajiwika got access to capital from the
bank through UP‟s guarantees, other banks have begun lending to this MFI. Motivation & Opportunity: The poorest people in the world have to live on just USD 2 a day. They struggle each day to fulfill the most basic needs of food, shelter, and clothing for them and their families. By giving this group access to these microloans, they are being given an opportunity to develop small businesses that will ostensibly support the borrower and potentially benefit the borrower‟s entire village or community. The provision of
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small loans (microloans) to poor borrowers, through specialist microfinance institutions is known as microcredit. In the last couple of years, this has become a worldwide movement. Despite its power to transform lives microcredit reaches only a small fraction of the people who need it; many of the poorest in the most economically backward areas with the greatest need are often outside the reach of microcredit. Microfinance Institutions serve only 100 million of the 1.5 billion working poor in need of microfinance (Gonzalez and Rosenberg, The State of Microfinance, 2006). Current funding of MFIs is estimated at USD 40 billion, but an estimated funding of USD 250300 billion will be required to meet the potential demand (Jennifer Meehan, Tapping Financial Markets for Microfinance, Grameen Foundation, 2004). Although there are nearly 10,000 microfinance institutions in the world, most of the funding goes to a few institutions. While Tier 1 MFIs and some Tier 2 MFIs are relatively well-funded, the smaller Tier 3 and Tier 4 MFIs find it very difficult to raise funds. Thus there is a large number of Tier 2, Tier 3 and Tier 4 MFIs
| S T A R T U P S T O R Y | UNITED PROSPERITY |
Basic Model of United Prosperity who could benefit from additional funding through United Prosperity (see Figure 1). Process of Working:
most cases, the MFI partner issues the loan from their working capital, to encourage the entrepreneur to start work on their business.
UnitedProsperity.org (www.unitedprosperity.org) is an Internet- based non-profit social enterprise that enables private individuals to become social guarantors and contribute towards the eradication of extreme global poverty. The UP website is a platform where poor entrepreneurs, MFIs, and social guarantors can come together through the following steps:
Step 2: Individuals can see the entrepreneurs‟ profiles on the UP website, choose which ones they would like to support, and guarantee a loan through PayPal.
Step 1: UP‟s MFI partners screen the entrepreneurs and upload their profiles on the website. In
Step 4: Based on UP‟s guarantee, the bank issues a loan that is greater than the total guarantee
Step 3: UP consolidates the guarantees on multiple loans on behalf of the MFI partner and then issues a guarantee to the bank. The funds are deposited as collateral with the bank.
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amount. If the loan to the entrepreneur is already disbursed from the MFI‟s working capital, then the microfinance institution is able to replenish its working capital. Otherwise the loan is disbursed to the entrepreneur. Step 5: The entrepreneurs use the loans to grow or start their businesses. After an agreed period, they start repaying their loans. Repayment statistics and progress updates are available to the guarantor through postings on the entrepreneur‟s profile on the UP website made by the MFI staff. Step 6: Upon repayment of the MFI‟s loan, UP‟s guarantee to the bank is released. The guarantor‟s funds will then be returned. The
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| S T A R T U P S T O R Y | UNITED PROSPERITY |
guarantor may elect to support other entrepreneurs or withdraw the funds. The beauty of UP‟s guarantee is that it reduces the risk taken by the banks, thereby motivating them to lend to smaller MFIs. Once banks lend to the smaller MFIs thanks to UP‟s guarantee, the MFI starts to build a relationship and credit history with the bank. This gives the banks greater confidence to provide capital to smaller MFIs with manageable levels of risk. As an instrument of social and financial change, UP‟s loan guarantees are much more powerful than outright donations or direct loans for a number of important reasons because they: Offer higher social return on investment – A loan from an individual to an MFI results in a loan of equal size to the poor entrepreneur. As the guarantee provided by the UP model is only partial, the impact for the social guarantor is greater. For example, if the poor entrepreneur needs to borrow USD 1,000, then the social guarantor needs to guarantee the loan only to the extent of USD 500. This USD 500 will be leveraged to provide a USD 1,000 loan to the entrepreneur giving a leverage ratio of 2 (USD 1 000/USD 500). Create local self-sufficiency – UP‟s guarantee for the loan helps to establish partnerships between MFIs and local banks, thereby building institutions and capacity at the local level for greater longterm benefits. In contrast, direct
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international lending to MFIs from international donors could foster dependency on foreign donors rather than strengthen local institutions and institutional linkages. Mitigate currency risk – UP‟s loan guarantee model has the effect of mitigating the currency risk to the MFI because the MFI borrows money from a local bank in the local currency. Moreover, social guarantors are not exposed to any currency risk, unlike some other online lending sites which pass on some of the currency risk to their individual lenders.
ity.org/us/progress_reports. The guarantee provided by United Prosperity impacts several areas: 1. Entrepreneurs receive microloans, increase their income and eventually comes out of poverty.
The impact
2. The MFI builds credit history with the bank which lends to the MFI based on the guarantee. Once the credit history has been established, over a period of time, the bank will lend to the MFI even without a guarantee thereby lifting even more entrepreneurs out of poverty.
Since starting operations, UP has provided more than USD 130, 000 in microloans to over 650 entrepreneurs and their families.
3. Other banks start lending to the MFI, thereby increasing the pool of capital available to poor entrepreneurs.
The majority of microfinance borrowers are women. After meeting the basic needs of their family, women are more likely to invest their profits in improving their family‟s quality of life and opportunities in education, healthcare and nutritious food. As a result, it is more likely that those future generations will break free from the cycle of poverty. Other entrepreneurs have taken out microfinance loans to buy cows or buffalos, or more stock for their shops. As a result, many of them have increased their income and their standard of living, enabling them to improve their homes and many of them have even started saving for the future.
Final Verdict:
More details are available at http://www. unitedprosper-
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unitedProsperity.org‟s guaranteeloan- impact model has immense potential to make capital available to the poorest families in the world. It is an excellent way for the general public to make a sustainable and meaningful difference to the lives of low income clients and their families. As poor entrepreneurs become wage earners and start managing their own loans and savings, their status in the family and the community improves, and they are able to plan for the future. Contributed by: Nitin Jain (Nitin Jain graduated from IIT Bombay in 2004 and has been associated with United Prosperity for past one year)
| B I Z W I T S | QUIZ-ANSWERS |
Quetzal - Answers 1. Nestlé‟s soup brand, Maggi, was promoted by McCann Erickson in Romania with an advertising campaign, “If Only Women Spent Less Time Cooking”. Three print advertisements suggest what might have happened if people were able to make use of ready-made soups: The Godmother, four USA presidents on Mt Rushmore and Tarzan rescued by Jane. 2. Blockbuster 3. Garrincha. FIFA considers him the best Brazilian player ever after Pelé. He is also widely regarded as the best dribbler in football history. 4. W - Dustin Hoffman; X - Gandhi; Y - Tootsie; Z - Ben Kingsley 5. Lothar Matthaeus 6. Benetton 7. Army Post office(APO) and Field Post office (FPO) 8. The Kármán line lies at an altitude of 100 km (just over 60 miles) above the sea level, and is commonly used to define the boundary between the Earth's atmosphere and outer space. This definition is accepted by the Fédération Aéronautique Internationale (FAI), which is an international standard setting and record-keeping body for aeronautics and astronautics. The line was named after Theodore von Kármán, (1881 –1963) a Hungarian-American engineer and physicist who was active primarily in the fields of aeronautics and astronautics. He first calculated that around this altitude the Earth's atmosphere becomes too thin for aeronautical purposes (because any vehicle at this altitude would have to travel faster than orbital velocity in order to derive sufficient aerodynamic lift from the atmosphere to support itself). Also, there is an abrupt increase in atmospheric temperature and interaction with solar radiation. 9. During the 1994 World Cup, Colombia‟s Adres Escobar Saldarriaga (13 March 1967 – 2 July 1994) netted an own-goal that helped USA advance and sent his own team packing. This own
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goal occurred on June 22, 1994, in the second match of Group A, which resulted in a 2-1 victory for the Americans and an exit for the Colombians. On July 2, 1994, Escobar was shot and killed in Medellin outside “El Indio” bar, located in a Medellin suburb. It‟s believed by many that he was killed due to his own-goal in the „94 World Cup, which resulted in gambling losses to several powerful drug lords. It has also been reported that after Escobar was shot, the killer yelled “Goal!” after each of the 12 bullets fired, just like an announcer would during a soccer match. 10. Benchmarking. 11. It is India‟s first ISO CERTIFIED paan parlor, they even have a website: http:// yamupanchayat.in/home.htm 12. Casio 13. Silvio Gazzaniga, who designed the current version of the FIFA World Cup Trophy. 14. Toffee 15. Penny – Farthing or the ordinary Bicycle. 16. Havana Club Rum, truly CUBAN in spirit & authenticity 17. Deposit insurance, as we know it today, was introduced in India in 1962. India was the second country in the world to introduce such a scheme - the first being the United States in 1933. It was in 1960 that the failure of Laxmi Bank and the subsequent failure of the Palai Central Bank catalyzed the introduction of deposit insurance in India. The Deposit Insurance Corporation (DIC) Bill was introduced in the Parliament on August 21, 1961 and received the assent of the President on December 7, 1961. The Deposit Insurance Corporation commenced functioning on January 1, 1962. 18. Ginger Hotels 19. The first Maruti 800 car. 20. Ronald McDonald, the Hamburger-Happy Clown
July, 2010
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| C R E A T I V E B E N D | 180 DEGREES |
OR Horsepower?
Horse Power
-Thiagu Ranganathanan, Research Scholar SJMSOM, IIT Bombay Car Emissions For all of you who admire the Car and the comforts it gives and the luxury factor it encompasses, here are a few statistics for you: Car emissions kills 30,000 people each year in the U.S. (2, 1998) More than half of the people in the U.S. live in areas that failed to meet federal air quality standards for several days a year (7, 1990), and around 80 million Americans live in areas that continually fail to meet these standards (6, 1998). Most ozone pollution is caused by motor vehicles, which account for 72% of nitrogen oxides and 52% of reactive hydrocarbons (principal components of smog). (7, 1990)
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Emissions from cars dwarf that from power plants. In May 2000, Austin Energy planned to reduce nitrogen oxide (NOx) emissions by 40% at its Decker and Holly power plants, from 1700 tons per year to less than 1000 tons per year by 2003. By comparison, NOx emissions in Travis County from motor vehicles totaled approximately 30,000 tons in 1996 ( the last year for which complete data was available). (1, 2000) SUV's put out 43% more global-warming pollutants (28 pounds of carbon dioxide per gallon of gas consumed) and 47% more air pollution than the average car. (4, cited in 2002) (Source: http:// bicycleuniverse.info/transpo/ almanac.html ) These are old statistics and the number would have in-
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creased by now to some unimaginable proportions. To put things in perspective, around 15,245 people died in US of HIV/AIDs, almost half the number of deaths caused by Car emissions (NIAID, 2000). After seeing these statistics, you might be left to wonder about continuing with cars as a means of travel. Why Cars? Some of us would be left to think why such a harmful thing was invented and how it became popular at all, in the first place. Let us look at why this need came. At the turn of the twentieth century, there were no cars; there were some 200,000 horses which worked in the New York City or 1 horse for every 17 people. Horse-drawn wagons were there all around the city and when a horse broke down, it was
| C R E A T I V E B E N D | 180 DEGREES |
often put to death on the spot. Many stable-owners held lifeinsurance policies, that, to guard against fraud, stipulated the animal be euthanized by a third party. (And you thought Car Insurance is a pain!). There was also considerable noise pollution that was caused by iron wagon wheels and horseshoes. In 1900, horse accidents took away the lives of 200 New Yorkers, or 1 death every 17,000 residents. By comparision,in 2007, 274 New Yorkers died in auto accidents, or 1 death every 30,000 residents!
considerable negative effects on the natural ecosystem. Worst of all was the problem caused by horse dung. The average horse produced about 24 pounds of manure a day, which totalled to 5 millions pounds of horse manure a day. In 1894, the Times of London estimated that by 1950 every street in the city would
Oh Sh**! Horses also need to eat. According to one estimate each urban horse probably consumed on the order of 1.4 tons of oats and 2.4 tons of hay per year. One contemporary British farmer calculated that each horse consumed the product of five acres of land, a footprint which could have produced enough to feed six to eight people. Probably fifteen million acres were needed to feed the urban horse population at its zenith, an area about the size of West Virginia. Directly or indirectly, feeding the horse meant placing new land under cultivation, clearing it of its natural animal life and vegetation, and sometimes diverting water to irrigate it, with
be buried nine feet deep in horse manure. One New York prognosticator of the 1890s concluded that by 1930 the horse droppings would rise to Manhattan’s thirdstory windows. Also, the manure emits methane gas, a powerful greenhouse gas. The 1898 International Urban conference, the first of its kind had an agenda dominated by horse manure. Stumped by the crisis, the conference declared its work fruitless and broke up in three days instead of the scheduled ten. The world had seemingly reached a
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point where its largest cities could not survive without the horse but couldn’t survive with it either.
Then came the Car! So, no wonder that when car was invented it was proclaimed as an ‚environmental savior‛. Even you would agree with them if you were living in New York City 100-110 years ago. The problem was vanished when the technological innovation of dung-less animal called car was done. But now the world is fastly reaching a stage where living without automobiles is difficult and living with it is unsustainable. The horse situation showed that when a solution to a given problem doesn’t lay before our eyes, it is easy to assume that no solutions exist. But history has shown again and again that such assumptions are wrong. So, maybe it is time we might come up with a newer innovation that could stop the perils of cars. Sources/References: Super Freakonomics, Steven D. Levitt, Stephen J. Dubner, 2009 From Horse Power to Horsepower, Eric Morris, Access, Magazine of University of California Transportation Centre, Spring, 2007 http://bicycleuniverse.info/ transpo/almanac.html
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| C R E A T I V E B E N D | BLOG |
The Green Mile! - Paritosh Chaube, SJMSOM, IIT Bombay Folks! This stuff has got nothing to do with Stephen King or Tom Hanks! It’s merely an austere attempt to recall a trip down the countryside during the Christmas vacations. Normally I woke up that Sunday morning ‘round 10, as if a weekend really matters once vacations are on... Nevertheless, Dad asked me if I would accompany him for a drive down the ‚Bakshi Ka Talab‛ – a small village on the outskirts of Lucknow City! ‚Hmmm, It’s been a while since I’ve seen a thing green. I quit green vegetables long back :P‛, I chuckled... ‚Why not... Let’s Move n set things rolling!‛ It took about an hour for us to reach the ‘Talab’... alighted me from the Tavera with my Kodak... n I seriously felt that God finally heard me moaning – ‚Gimme some Sunshine‛! The jacket was thrown away, for Mr. Apollo was dazzling with full might! There was something pleasantly peculiar about the smell of the breeze, which was kinda tangy... and there lay a vast stretch of limitless land, which was green n yellow n wavy... outlined by a hazy strip of woods... which blended with
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the horizon in perfect harmony! The green life was expressing its delight by means of those yellow little bunches of florets... which drove me closer to them n whoa! I see myself in the middle of some Neverland... and you automatically let loose your limbs... n take a 360 degree view... n feel like jumping in the thin air when suddenly you feel something just trip over your feet! I knew it... It were Chip n Dale, jeering me for my act... as if scorning – ‚Look at this poor chap, deriving pleasure outta the simplest of things!‛ Who can explain those dinky squirrels, that it’s the simple
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things which are rare in the human world... n they marvel us more than the convoluted! I could’ve stayed in that patch for eternity, but for another piece of simplicity which caught my attention. There was this little space that appeared to have been naturally carved out for a purpose... What surfaced to be Di-hydrogen Monoxide... with the tiniest of green leaves covering them... similar to a few from the Summer/Spring collection of Victoria’s Secret adorning those zero skinned females which just about qualify to be termed as apparels! ;) Adjoining which was a
| C R E A T I V E B E N D | BLOG |
man-made road... which probably lead to another one of those la-la lands! Something asked me to follow that trail... and I aimlessly moved about to find another little space... n there stood this huge dignified gentleman... quite similar to the Na'vi Hometree of Pandora (Avatar Fame)... the only difference being that there were no Na’vi warriors aiming poison arrows at me... and there was no Neytiri (SIGH) (SIGH) to... ahem ahem! Of course... surrounding the
Home-tree, there was this huge chaff bundle... which would probably find its way through the intestines of the village cattle sometime soon! That spring in me made me jump at that chaffbundle like I’d crash at ma bed post the last terminal examination of the semester!! Trust me, lying down on that... despite running the risk of bird-drops... was a heavenly experience in itself! ‚Tumse hi din hota hai..surmayee, sham aati hai...‛, Don’t get me wrong there... i aint
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getting romantic... it was ma bloody cellphone which played the spoilsport, yet again (SOB) (SOB)!! ‚Beta, am done with ma work, where art thou... get back to the car!‛ Finally, it was time to go... and I was cursing Airtel... for it was ‚Expressing Itself‛ at the wrong time! I did manage a few clicks here n there... n a few of those impressions remain in the gray film of the Cerebellum!
Cheers!
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| S O M t h i n g S P E C I A L | CONTINUUM |
Shailesh.J.Mehta School of Management (SJMSOM) organizes Business Seminar Series - Continuum SJMSOM and Vinnoite Media launched the annual rolling seminar series, Continuum, in association with Financial Express and COVACSIS on the 20th of March. At each Continuum, eminent speakers from the industry as well as academia engage in talks, presentations and panel discussions on topics pertinent to industry. The series began with the Consulting and Operations continuum on the themes: “Handling Market Optimism with Caution: A Consultant‟s Approach” and “Towards creating a Sustainable Green Supply Chain”, respectively.
Consulting Continuum
The first speaker at the consulting continuum was Mr. Shishir Kapoor - Lead Principle and
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Country Head at Opera Solutions. He advised caution, suggesting that instead of jumping onto the bandwagon, a firm should carefully think out its strategy. Mr. Kapoor recommended using data analytics to achieve this; by determining trends in customer value perception, maintaining a focus across the lifetime of customers, and then tailoring products to a “segment of one”. By doing this, a firm can deliver customized products and services that truly provide the greatest value to its clients. Next, Mr. Sameer Bapat, Operations strategy leader, IBM, spoke about IBM‟s approach in the recession and recovery. He stressed on making use of low prices to target scarce resources including talent. Driving cost efficiency and using a targeted approach to grow revenues were his other remarks.
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The two seminars were followed by a panel discussion on the topic “Rising from the Ashes: Who would be more effective? Specialists or Generalists”. On the panel were Mr. Kedar Gadgil - Managing Consultant- PricewaterhouseCoopers, Mr. Ryan Lowe - VP, Avalon Consulting, Mr. Rajesh Iyer, Director, Cedar Management Consulting and Mr. Sameer Bapat of IBM. Moderating the discussion was Mr. Thakor, a PhD student of SJMSOM, IIT-B. In the course of an invigorating discussion, it emerged that consultants usually begin their careers as generalists and then proceed to become specialists. Also, according to Mr. Iyer, individuals become more generalist in their approach as they move further up, to lead the organization. However, the choice of a generalist or specialist in a consulting team entirely depends on
| S O M t h i n g S P E C I A L | CONTINUUM |
circumstances, and what is right for a particular project. In the end, the panel concluded, that for a B-School student making a choice between generalization or specialization, what is important is following one‟s dreams. Next, Mr. Vinod Kala, Founder, Emergent Ventures, gave a very interesting seminar on clean technology. He spoke of consulting in environmental services, where a consulting firm might undertake external projects, such as afforestation, on behalf of a client, to lower the client‟s carbon footprint. He believed that as renewable energy is becoming economically viable to produce, and as consumers develop preferences for “green” products, there is a great future in going green. He estimated a $1 trillion p.a. investment in green projects by 2030.Following this was a speech by Mr. Tarun Mishra- co-
founder of Covacsis, who spoke of a need to change the way a consultant thinks so that creativity and innovation could be added to structured, linear thinking. He stressed an interdisciplinary approach to consulting, which he termed as - the philosophy of design. He also suggested that current, numbers based measures of success should be changed and also, new business models for consulting should be defined. The day‟s final speaker was Mr. Rakesh Barik, Director, Deloitte Consulting, who spoke on consulting as a career. He stressed on the importance of teamwork and networking in a consultant‟s job and placed a lot of emphasis on trust. He then proceeded to humorously debunk various myths of consultancy: including the popular idea that consultants do not have a
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work life balance. The consulting continuum was preceded by a national level online quiz and case simulation competition which saw participation from over 150 teams from across the world including teams from UK.
Operations Continuum
The Consulting continuum was followed by the Operations Continuum on the 21st of March. The keynote address for the event was delivered by Mr. Sukumar Narasimhan, Senior Vice President - Supply Chain, Reliance Industries. He spoke about “what is not so obvious within the supply chain ecosystem” and emphasized on the importance of going back to basics. He stated that if all processes are standardized, maintaining these processes takes precedence over completion of tasks. Also, flexibility to
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| S O M t h i n g S P E C I A L | CONTINUUM |
respond to unforeseen events is reduced. He suggested that rather than standardizing entire processes, firms should standardize and automate routine transactions. Next was Mr. Sivakumar Periasamy, Vice President - Procurement, IBM India. He spoke of IBM‟s efforts in sustainability, including the design of green, energy efficient, data centers. He also spoke of IBM‟s procurement policy, wherein the company only chooses suppliers that are known to comply with environmental norms. The seminars were followed by a panel discussion among speakers from a wide range of industries. The members of the panel were, Mr Hans-Henrik Hansen, Cluster Manager, South Asia, Maersk Group, Dr. Prasad Kanitkar- Director Plant Operations, Pfizer India Ltd, Mr. Jagadeesh K Math – Director, Rolta India Limited and Mr. Sukumar Narasimhan, Senior VP - Supply Chain, Reliance Industries. Moderating the panel discussion was Mr.G. Chandrashekar, Associate Editor, Business Line. The theme of the panel discussion was “Role of Technology in Creating Sustainable Green Supply Chain”. Points mooted were: the role of organic biofuel in the supply chain to enhance “greenness”, the importance of conserving water through reuse after purification, the use of Geographic Information System (GIS), to visualize an area and make it easier to understand and implement green practices there. The panel also emphasized on the role of small actions towards a common goal, such as switching off lights
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which are not required in company offices. The panel agreed that there are enough Governmental policies in place to protect the environment; these just have to be well enforced and endorsed. Next, Mr. Chandrashekar shared his views on macroeconomic environment indicators and their relevance to the environment. He said that it will be necessary to choose between growth and environmental sustainability, since both are unlikely to occur for a developing country like India: a case of having one‟s cake and eating it too. Mr. Hans-Henrik Hansen, Cluster Manager, South Asia Maersk Group, spoke about sustainability in shipping logistics by combining CSR (Corporate Social Responsibility) and HSE (Health, Safety and Environment) to benefit both the business and society. This was followed by a talk by Mr. Ashu Khanna, Head Supply Chain, Marico, who spoke about building a sustainable organization. He suggested involving employees on both personal and professional levels in such an initiative. He also suggested involving business associates including suppliers and distributors. Next was Mr. S. Seshasayee, Senior General Manger - Supply Chain, Mahindra & Mahindra. He spoke about the triple bottom line principle of “people, planet and profit” wherein a firm should perform financial accounting as well as social and environmental accounting. He emphasized that the journey towards sustainability does not have a finish line. The
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target is always moving.This was followed by Mr. Jayant Ambast, Head Supply Chain, Perfetti Van Melle. He spoke of the importance of austerity, efficiency in the usage of scarce resources and technical efficiency in creating a green supply chain. He suggested that suppliers should be located close to the manufacturer, to ensure low transportation costs and less miles travelled. The last speaker was Mr. Rajiv Mehta, Head SCM, Ultra Tech Cement. He spoke of how the cement industry has started to go green by introducing other industries‟ wastes as components of cement, for e.g., tire chips and fly ash from thermal power plants. He also suggested switching to the sale of unpackaged, ready-mix cement in bulk to be transported to distribution centres by rail. An underlying theme, in all the discussions, was that environmental sustainability has now become imperative for all businesses. With growing preference of consumers for green products, “green” is now a competitive advantage. Also, introducing environmentally friendly measures makes good business sense as these improve efficiency and decrease costs, thus improving profits in the long run. The first leg of Continuum was a huge success and was attended by management students from different B-schools, students and faculty of IIT Bombay and representatives from companies like Morgan Stanley, TCS, L&T etc.
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Shailesh . J . Mehta School of Management Indian Institute of Technology Bombay Powai, Mumbai Mumbai— — 400076 Tel: +91 022 257 67781 Fax: +91 022 257 22872