The Reflection of Management FINANCE | GENERAL MANAGEMENT | HUMAN RESOURCE | MARKETING | HEALTHCARE | OPERATIONS | SYSTEMS
A Students’ Initiative
A Student’s Initiative
Pratibimb | January 2012 | 1
Volume II, Issue VII
January 2012
A Monthly e-Magazine
T. A. Pai Management Institute Manipal, Karnataka
About TAPMI T.A. Pai Management Institute (TAPMI) is a premier management institute situated in Manipal and is well known for its academic rigor & faculty-student interaction. The Institute has been recently ranked amongst top 1 per cent of B-schools in India & 4th in the South Zone by The Week Magazine. Founded by the visionary, Late Shri. T. A. Pai, TAPMI’s mission is to provide much needed impetus to the task of building professional management capability in the country. In the process, it has also played a role in strengthening the existing educational and health infrastructure of Manipal.
Mission We are committed to excellence in post-graduate management education, research, and practice by nurturing and developing global wealth creators and leaders. We shall continually benchmark ourselves against the best in class institutions. We shall foster continuous learning and reflection, achievement-orientation, creative interdependence and respect for diversity with a holistic concern for ethics, environment, and society.
Recent Update Dr. Ramdas M Pai, Chairman, Manipal Education and Manipal Group, has been awarded the Golden Peacock Lifetime Achievement Award for 2011 in recognition of his contribution in the field of education and healthcare.
Pratibimb | January 2012 | 2
About Pratibimb Pratibimb a reflection of management, is an amalgamation of pioneering thoughts, put forth by some of the best brains of the crem de la crem of Indian B-Schools and corporates. It brings out a collection of Ideas concerning the various disciplines of management sciences and provides opportunities to ponder over various management issues and scenarios, to B-Schoolers across the country. Insights of Industry stalwarts and revered academicians also find their place in the magazine. Pratibimb the e-Magazine of TAPMI had its first issue in December 2010. The issue comprised of an interview of denoted writer Ms. Rashmi Bansal along with a series of articles by students and industry experts like MadhuSudan Rao (AVP-Delivery, Mahindra Satyam) & Ed Cohen who is a global leader and chief learning officer who led Booz Allen Hamilton & Satyam Computer Services to the first rank globally for learning & development. It also introduced a hugely successful and engrossing game for finance geeks called “Beat the Market” to bring out the application based knowledge of students by providing them the platform where they were expected to predict the stock prices of two selected stocks on a future date. The magazine is primarily intended for the development of all round management knowledge by providing unbiased critical insights into the modern developments. In sync with TAPMI`s belief of learning not being restricted to classrooms and textbooks, Pratibimb provides an atmosphere of knowledge sharing and skill enhancement to students and also a competitive platform which allows B-Schoolers to brainstorm and critically analyse real life management situations. Within a short span of time, Pratibimb has been able to create a buzz on most B-school campuses in the country and currently enjoys the confidence and admiration , reflected in the articles sent for publication, of various reputed Management Institutions. Pratibimb has featured interviews of eminent personalities from public and private sector like Ms. Rashmi Bansal (Author of "Stay Hungry Stay Foolish", Editor - JAM Magazine and IIM A alumnus), Dr. Jagdish Seth (Global Marketing Guru, Emory University, USA), Mr. Dhanendra Kumar (Chairman, Competition Commission of India), Mr. Vinit Monga (Head of Finance and Control, Nokia Siemens Network, Bangalore) and Mr. Benny Augustine (Director - Human Resources, Unisys India). Pratibimb became a monthly e-magazine from October, 2011. Views and opinions of long time Veterans of Industry provide a peek into the real churnings of the Corporate world and rare insights into challenges and concerns of industry, bridging the gap between Campus and Corporate. Its commitment to excellence and innovation is growing by leaps and bounds with every new issue, fuelled by the interest shown by avid readers, subscribers and contributors. A host of new innovations, features and additions are in the offing as this dynamic offering from students of TAPMI is in the process of constant reinvention. With better things on the horizon, Pratibimb is poised to be a better reflection of the management world, and a lot more. We invite you to become a part of Pratibimb and help us take this to next level by contributing articles or participating in national level B-School events – “Beat The Market” and “Route To Market”.
Pratibimb | January 2012 | 3
MESSAGE
DIRECTOR’S
Previous Edition’s
I am pleased to state that the team members of PRATIBIMB have continued their sincere efforts to bring out this ninth issue in January 2012. The previous eight issues had a number of management articles written by students of various B-Schools and also from students and faculty of TAPMI. This student magazine is also accessed and appreciated by our alumni and industry and business readers. The magazine provides a platform for our students to use their creativity, imagination and language skills to reflect upon various management areas i.e. operations, marketing, system, HR, finance and entrepreneurship as well as in areas of their interest. It also fosters research culture among students. Research orientation and sharpening analytical mind are crucial for their academic orientation. Generally literary work, research article writing and publication should become part of students’ learning goals while they are in the campus. This would perhaps sow seeds for pursuit for academic career by a few management students after their initial experience in industry and business. It has been observed that on comparison with fast developing country i.e., China in Asia, the focus on research and publishing from Indian students and faculty in management journals and pursuit of Ph.D. programme in leading universities has been moderate in recent past. This situation needs to be improved. To this extent our students and faculty can best express themselves about their creative thoughts, opinions, knowledge and interests by contributing to PRATIBIMB. Let PRATIBIMB grow in content and variety with thoughtful articles in months to come. I congratulate the persistence and continued efforts put in by the team members of PRATIBIMB for timely publishing this volume. I wish them higher performance, joy and success in their endeavor. Dr. A. S. Vasudev Rao
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editor’s corner
Rohit Kumar, Chief-Editor Ramanuj Vidyanta, Editor-Branding Sarvesh Joshi, Editor-Creative Designer
Dear Readers, We are pleased to release January, 2012 edition of Pratibimb. We are thankful to all the students from various colleges who put in great efforts in writing articles on various issues/topics and worked hard to send entries for “Beat The Market” and “Route To Market”. The articles have been selected by the Editorial Team whereas “Beat The Market” has been judged by Mr. Mitesh Thacker, Head Research & Trading Analyst, www.miteshthacker.com and TAPMI Alumnus (PGDM 1997-1999) and “Route To Market” has been judged by Prof. Vinod Madhavan, TAPMI. We thank judges for their precious time. We also thank all those who helped us in improving Pratibimb through their feedbacks. We would like to take this opportunity to extend our gratitude to all faculties and students at TAPMI for their continued support, guidance, motivation and inspiration to take Pratibimb to the next level. Please continue to send in your valuable suggestions / feedbacks at pratibimb.tapmi@gmail.com so that we can make improvements in the coming issues.
SUB-EDITORS
Abhishek Anupam Abhishek Dubey Manish Mishra Pranaynehru T Sushmit Sinha Vandana Soni
Faculty Advisors
Prof. Chowdari Prasad, Dean (Planning & Development), TAPMI Dr. Jaba M. Gupta, Associate Professor and Chairperson—eGPX, TAPMI
Special Thanks Mr. Mitesh Thacker, Head Research & Trading Analyst , www.miteshthacker.com and TAPMI Alumnus (PGDM 1997-99)
Prof. Vinod Madhavan, TAPMI Prof. Kushankur Dey, TAPMI
Happy Reading!! Alumni Affairs Committee, TAPMI
Rohit Kumar Pratibimb | January 2012 | 5
contents A Synoptic View of Indian Commodity Futures Market
7
Prof. Kushankur Dey, Assistant Professor (Finance), TAPMI
Social Search- A Major Driver in Future Business Innovations
11
Nikhil Gulhane, IIM Indore
Euro Game
14
Harishma Mittal, IMI New Delhi
Financing Indian Infrastructure Sector
17
Ashley Rose Thomas, FMS Delhi
A Tryst with Dr. Soans at Moodibidri
22
Prof. Kushankur Dey, Assistant Professor (Finance), TAPMI
IPRS—is the name of the game
25
Vikash Kumar, IMI New Delhi
Re-Defined HR Function
29
Tuneer Chatterjee, STEP-HBTI
Fit of Social Media with Existing Marketing Strategies Sangeetha Kesav | Amit Sikdar, IIM Bangalore
Pratibimb | January 2012 | 6
31
A Synoptic View of Indian Commodity Futures Market
by Prof Kushankur Dey, TAPMI
Locking in Commodity Futures Market Indian commodity futures market has had a chequered history but has been taking off in a significant way in recent times. Commodity futures markets have been attracting a lot of attention because these markets have been providing avenues to different participants towards provision of information enabling resource allocation, risk minimization as well as the provision for information on transaction costs and their minimization by means of special forms of futures contracts, participants, and market institutions. In response to the role of the futures market, researchers opined that the futures market provides a partial insurance mechanism to the growers’ produce as this market is deemed to mitigate the price risk of output only rather than value of total produce. Since producers are not homogenous in nature, their expectations are largely varied with respect to the nature of produce, futures contract specifications, delivery month, margin money, and over and above all, efficiency of the market. Pratibimb | January 2012 | 7
It is believed that derivatives in the form of forward trading existed in India in ancient times, but in the absence of appropriate record keeping, nothing is known in this sphere till about a century ago. While commodity derivatives in some form, albeit crude, were prevalent in India since the late 19th century, it is only after the turn of the year 2000 that these have been introduced in a significant and systematic manner. On several occasions, committees had been constituted to monitor, control, and regulate this market at the behest of the government of India, namely, A.D. Shroff Committee (1950), M.L. Dantwala Committee (1966), A.M. Khusro Committee (1979), K.N. Kabra Committee (1993), Shankarlal Guru Committee (2001), Habibullah Committee (2003), and lastly Sen Committee (2008). It is worth noting that today India has 23 commodity exchanges of which 17 are regional and 6 are national level exchanges. The following table provides a neat understanding of regional and national level commodity exchanges and traded commodities on these exchanges:
TABLE 1: Year wise inception of Indian Commodity Exchanges and Traded Commodity Year Name of the Exchange
Commodity Traded
Remark
1875 Bombay Cotton Trade Association
Cotton
1893 Bombay Cotton Exchange Limited
Cotton
1st Regional exchange in India Regional
1900 Gujarati Byapari Mandali 1913 Chamber of Commerce, Hapur
Groundnut, Castor seed and Regional Cotton Wheat Regional
1919 Calcutta Hessian Exchange Limited
Raw Jute and Jute Goods
Regional
1920 Gold and Silver Exchange, Mumbai
Gold and Silver
Regional
1921 East India Cotton Association
Cotton
Regional
1927 East Indian Jute Association
Raw Jute
Regional
1945 East India Jute and Hessian Limited
Raw Jute and Jute Goods
Regional
1951 Rajkot Seeds Oil and Bullion Merchant’s Oil and Bullion Association Limited 1956 Bombay Commodity Exchange Castor seed, castor oil (1998), RBD Palmolin (2000) 1956 Ahmedabad Commodity Exchange Castor seed, Cotton seed, Cotton oil cake 1956 The Spices and Oilseeds Exchange Ltd. Turmeric
Regional
1957 Indian Pepper and Spices Trade Association 1970 Vijay Beopar Chamber Limited, Muzaffarnagar 1973 Bhatinda Om Oil and Oilseeds Exchange Ltd. 1982 The Rajdhani Oils and Oilseeds Exchange
Spices
Regional
Gur
Regional
Gur
Regional
Gur
Regional
1984 The Meerut Agro Commodities Exchange Gur Co. Ltd. 1997 Coffee Futures Exchange Ltd. Coffee 1999 National Board of Trade 2000 The Kanpur Commodity Exchange Ltd.
Regional Regional Regional
Regional Regional
Soyabean oil, Mustard seed Regional oil and oil cake Mustard oil and oil cake Regional
2002 National Multi-Commodity Exchange of Edible oils, Rubber, Coffee, National India Ltd. Jute Sacks, and Metals 2003 Multi Commodity Exchange of India Ltd.
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Energy and Metals
National and International (largest exchange in India)
2003
2003
2009 2010
2011
Multi Commodity Exchange of India Ltd. Energy and Metals
National and International (largest exchange in India) National Commodity and Derivative Ex- Agricultural commodities: National change of India Ltd. pulses, oilseeds and oil complex, cereals, plantation, and spices, metals and energy products Indian Commodity Exchange Metals, Agricultural com- National modities ACE Commodity and Derivative Ex- Agricultural commodities, National change metals and energy products Universal Commodity Exchange Metals National
Among these 27 exchanges, a few are operational. Multi Commodity Exchange is the largest commodity exchange in India and 6th largest exchange in the World. Table 2 enumerates the traded volume and value of commodity futures trading in India. TABLE 2: Volume (in million tones) and Value (Rs. in lakh crores) of futures trading in India 2006-07 Commodity Total
2007-08
grade specifications, daily and final settlement mechanism and delivery schedule are a few parameters underlying the principles of the futures contract design. The design provides a sketch of standardized contract of the notified commodity to all participants who are willing to participate through regulated structures. Performance guarantee is ensured by the exchange and its adjunct clearing house for both the buyer and the 2008-09
2009-10
2010-11
Vol.
Val.
Vol.
Val.
Vol.
Val.
Vol.
Val.
Val.
612.9
36.77
557.3
40.66
686.3
52.49
764.9
77.26
119.49
Source: Economic Survey of India (2006-07 to 2010-11), Government of India
seller. The logic behind these stringent surveillance mechanisms is to ensure liquidity, leverage, and transparency of the market.
Mechanics of Commodity Futures Mechanics of commodity futures trading has largely been adopted by almost all national level exchanges. These are at par with the best practices reflected on the Chicago Board of Trade (1848) and many global commodity exchanges. Mechanism of trading is put in place for better price discovery and price risk management. Trading, settlement, and delivery-three integral processes essentially make any futures contract complete. Margin money, quantity, quality or Pratibimb | January 2012 | 9
Margin Money and its Cost Margin money is an important pre-requisite providing a gate pass to enter the market. Margin is of two types; initial and maintenance, though, nomenclature of margin varies from one exchange to another. Precisely, margin imposed by any exchange is based on type of commodity being traded, positions taken by the client under the member, and volatility or price fluctuations of that commodity in the market for some period of time.
Initial margin constitutes about 4% to 5% of total value of the contract traded on the exchange platform. Some additional or special or/and incremental or variation margins are also charged by the exchange based on trading frequency, contract size, magnitude of the variation in spread, volatility in the market, etc. Arbitraging or short selling strategy can be an alternative, though it is opposite to the normal trading strategy. From financial angle, if margin money raised through collateral then it has a direct impact on number of contracts being purchased. On contrary, if it raised via debt or loan then is inversely proportional to purchased contracts.
Commodity Futures: Myths and Realities? No doubt, however, price formation and its transmission are some of the most discussed issues nowadays. While commodity futures markets are expected to play the two important roles of risk management and price discovery, their utilities in provisioning of these two services have come under criticism from various corners. It is further argued that availability and effective dissemination of information from the futures market helps to stabilize and decrease spot price volatility. However, all these present testable hypotheses. While ambivalence on the utility of futures markets still exists at the policy levels, probably the endeavour will help in expanding the literature base by furthering the debate on producers’ ground.
Beat the Market As Jim Cramer, a former hedge fund manager, and a best-selling author put it, “As long as you enjoy investing, you'll be willing to do the homework and stay in the game… I mean I'm not smarter than the market, but I can recognize a good tape and a bad tape. I recognize when it's right and when it's wrong and that's what my strength is.” Stock markets have never been predictable, you may apply the best of logic and reasoning, but there could be a possibility that you may falter if the emotions of the investors take control. The entries or this contest have been judged by Mr. Mitesh Thacker, Head Research & Trading Analyst, www.miteshthacker.com and TAPMI Alumnus (PGDM 1997-1999). The winning entry of ‘Beat the Market’, December2011 edition is Udaipur bulls from IIM, Udaipur !! Congratulations!! We thank all the participants for their effort. Beat the Market is a game designed to prove your mettle in stock market analysis. This time onwards, we will provide you the name of one listed company from NSE. You need to analyze stock movements of this company till 24th Feb, 2012. On the basis of fundamental and technical analysis you need to give us your share price estimate of this stock as on 9th March, 2012. Fundamental & Technical analysis will carry 70% weight while 30 % weight will be given to Accuracy of the estimated prices in the final score. The winning entry will receive a letter of appreciation and prize money of Rs. 1000 /Rules:
Company to be analyzed is Housing Development and Infrastructure Limited (NSE - HDIL)
You may analyze in a team of not more than 2 members
The file should not be more than 7 pages long including cover page, the cover page should contain the team name, team members name, Institute name, contact number
File name should be BTM_<TEAM_NAME>_<INSTITUTE_NAME>
Upload entries at http://www.tapmi.edu.in/student-life/pratibimb/participants-submission by 11:59 am, 24th Feb, 2012
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Social Search - A Major Driver in Future Business Innovations A New Perspective on Marketing and Business Innovations by Nikhil Gulhane, IIM Indore
Many companies are advertising on social networking sites and paying hefty amounts for sponsored search results. However the question is – if is this the best possible way of utilization of the technology to attract more customers and generate more value? Is there a better alternative? The answer might lie in new emerging technology called social search.
from regular results. How Social Search can be useful to businesses? How does new customer find you? Word of Mouth
82%
Search Engine / Internet
66%
Advertising
37%
What is social search?
Yellow Pages
23%
Social search is stream of research that explores methods of organizing users’ past interactions with an information system (also known as explicit and implicit feedback), in order to provide better access to information to future users of system.
Newspapers/Magazines
23%
Store Front
17%
Other
21%
Social search is a set of techniques focusing on
Collecting, processing, and organizing traces of user’s past interaction
Applying this community wisdom in order to improve access to information and thereby visibility to the firm’s offerings
Social search involves application of community wisdom of user’s peer group (colleagues, friends and relatives) to display the relevant search results to the user. For example, if I search some list of movies on internet, the search engine will also show movies recommended by my friends apart Pratibimb | January 2012 | 11
A) Generating word of mouth through trusted referrals As per the survey conducted by the American Express OPEN team in March 2011 on random sample of 400 startup US business firms, following statistics were obtained. Social search can help businesses to generate the word of mouth through a mechanism called trusted referrals. It has been observed that when we buy a new product, advices from friends and relatives has major role in affecting our decision to buy. Following findings of a research will reinforce the importance of trusted referrals.
Fig.1 Consumer Spending Behavior when referred by friend vs. when purchased alone (Ref Source: American Marketing Association. (March 2009). AMA report on Influence of friends on consumer spending)
Social Search is not equivalent to advertising on social networking site: The idea behind the social search is to generate maximum trusted referrals from peers which may not be achieved just through just spending money
on advertising on social networking site. Following graph will indicate the change in performance of advertising after the implementation of “page like” sponsored stories on Facebook. “Page like” by friends created trusted referrals and therefore
Fig 2. Change in performance of Facebook advertisements of two clients after implementation of “Page like” sponsored stories by friends which resulted in higher social referrals & higher acceptance (Ref Source: TBG Digital (March 2011). Global facebook marketing report. Retrieved from http:// www.tbgdigital.com/wp-content/themes/tbgdigital-multilanguage/pressreleases/tbg-digital-globalfacebook-marketing-report-q3-2011.pdf) CTR- Click through rates increased after social referrals CPC – Cost per click rates decreased CPA- Cost per acquisition decreased Pratibimb | January 2012 | 12
increased visibility in social search for the product. B) Empowering enterprises beyond business intelligence: Business Intelligence is set of technologies that gather, store, analyze and make accessible data to help managers make informed decisions. However if executives expect to discover new trends, gaps in organizational research and customer insights into where they should be building new products, they may be disappointed. Social search exploits linking all types of content from diverse source. As per CIO insight in 2007, following critical business needs were highlighted:
Developing new products including patent discovery and improving operations
Improving our ability to capture, analyze and provide real-time information
Gaining insight into customer facing activities.
Social search provides a huge opportunity toward meeting this business needs. There are business avenues like social media consulting, social search intelligence which are being currently explored. Google’s +1 and similar other initiatives are targeted to capture this opportunities. How it is
Pratibimb | January 2012 | 13
done in future is remained to be seen.
References:
American Marketing Association. (March 2009). AMA report on Influence of friends on consumer spending
Gilbane Group. (2007). Social Search becomes Strategic Technology. Retrieved from http://gilbane.com/whitepapers/Vivisimo/ Vivisimo-WP-final.pdf
Raghuram Iyengar, Sangam Han & Sunil Gupta (May 2009). Do friends influence purchase in a social network. Harvard Business School. Retrieved from http:// www.hbs.edu/research/pdf/09-123.pdf
TBG Digital (March 2011). Global facebook marketing report. Retrieved from http:// www.tbgdigital.com/wp-content/themes/ tbgdigital-multilanguage/pressreleases/tbgdigital-global-facebook-marketing-report-q3 -2011.pdf
Euro Game by Harishma Mittal, IMI Delhi
Economies are like the snakes and ladders, a good economic decision can take you up through the ladder of success while poor ones pull you down. Poland is on a crossroad where their decision to adopt euro can boost the economy and take them up the ladder in the game, however if the decision turns out to be a bane for the country, it would result in the economy becoming a victim of the big, venomous snake called recession. The theme of this article revolves around the same snakes and ladders game; I renamed it as “Euro game” Since 2004, when they became a part of the European Union, the debate on this question has been going on. There have been two groups, first the modern and forward looking one which favours the adoption of euro as it believes that would result in the growth and development of the economy and the standard of living, the second, the orthodox and reserved ones believe that it would take away their rights and control on their economy and would turn out to be a disaster. These groups have mainly been formed on political grounds. One of the two parties of the polish political system, Kaczyński brothers’ the Law and Justice (PIS) party, the previously ruling party, was sceptical about rushing into joining and still believes in taking it slow ,weighing the pros and cons, and wants to go through a referendum on this issue . Whereas, the party currently ruling the nation, Prime Minister Donald Tusk’s Civic Platform (PO), has been intent on adopting it sooner rather than later. A similar conflict is there between the people. The support for the euro has been higher in larger cities while its lower in the Pratibimb | January 2012 | 14
relatively rural areas. The Governor of the National Bank believes that haste could be harmful to the country’s economy but still suggests that Poland should join in. And so is the belief of Saryusz-Wolski, who in line with German Chancellor Angela Merkel's aims affirmed the necessity to change the EU treaty regarding the size of loans that member states can take among themselves, so that “no one goes into debt at the expense of somebody else.” Poland will have to postpone this convergence which they were hoping would happen in 2012, owing to the recession which has hit the economy resulting in failure in meeting the conditions set by the European Monetary Union. To join the game of Euro, Poland will have to qualify first. The first of two main barriers (conditions) are the requirements of the Maastricht Treaty and secondly they have to take part in the European exchange rate mechanism (ERM II) under the European Monetary System (EMS) for a period of two consecutive years, which means that exchange rate of Poland cannot fluctuate more than 15% against the euro during that time. After swimming through these oceans, other small canals have the criteria to include an inflation rate of no more than 1.5 % points above that of the 3 members of the European Union showing lowest inflation. The deficit to GDP ratio ( i.e. Ratio of the annual government deficit to gross domestic product ) must not exceed 3 per cent (or at least be at a level close to 3%) at the end of the fiscal year before joining, which currently is 7.9% for the country. Government debt ratio to GDP should be less than 60% at
the end of the fiscal year before joining, or should be approaching this figure at a ‘satisfactory rate’; this condition is being satisfied by achieving a 51% ratio. Finally, nominal long-term interest rates should be less than two percentage points above the 3 members of the European Union showing lowest inflation. These targets are very difficult to achieve especially in the prevailing economic conditions, few countries which already are members of the Euro zone are also finding it difficult to achieve them. European Central Bank, even though requested by IMF to relax its regulations, does not want to do so as after the euro crisis all the member countries have become very sensitive about the countries being added since they do not want to pay the loans of any other non-performing country. Every financial decision has two sides to it, the country has to weigh both the sides and decide whether the prospect’s advantages surpass its disadvantages . Adopting euro comes with its fair share of pros and cons ; both having long and short-term effects. First, let’s have a look at the bigger picture. The long term positives and negatives. Proponents for the adoption of euro would have the potential benefits that a common currency will bring, especially
who normally borrow in foreign currencies to fund big ticket items such as infrastructure needs like houses and apartments. Ever since the Euro zone crisis began, the Polish zloty experienced a decline while losing approximately 1/3rd of its value in relation to Europe’s more stable currencies and the dollar. This had a particularly adverse affect on many Poles who took out mortgage loans in currencies like Swiss francs to buy homes and who, as a result ended up paying many thousands zloty more for their new purchases in real terms. The main drawback of the adoption of euro in Poland is that it would be required to give up its control on its monetary policy to the ECB (European Central Bank) which monitors and controls the situation of all of the countries in the euro zone. At a point of time the economic cycles for different countries can be different, thus requiring different policies, which is not possible with the single monetary policy enforced by ECB for all. For example, Poland is still expected to growth in the near future as predicted by many economists. Therefore, they would do better with a stringent monetary policy with higher interest rates if they want to have lower levels of inflation. Whereas, in countries with high unemployment rates, it is advised to have a loose monetary policy with lower
Membership criteria Government Finances Inflation rate
annual government deficit to GDP
gross government debt to GDP
Min. Values required to become a member of the Euro Zone
max 1.5%
max 3%
max 60%
Poland
4.8%
7.9%
51%
the increase forecasted in country’s trade and growth, resultant of monetary integration with the rest of Europe. Different costs related to zloty / euro exchange rate connections would be eliminated along with the exchange rate risk in the trade with countries of Euro zone. The exchange rate risk elimination is expected to not only have a positive and direct effect on business, but is also been anticipated to remove this type of risk for Poles Pratibimb | January 2012 | 15
ERM II membership
min 2 years
Not a member
Longterm interest rate
max 6.0%
4.5%
interest rates. It is difficult to strike a balance between the two, and the common monetary policy would often not be the best for the economy of the country. From the above graph we can clearly see that there is a significant difference in the GDP growth rate of Poland and that of the euro zone. Thus, the policies in the euro zone would be chartered by taking
into consideration all the countries and would not prove beneficial for Poland which is growing at a higher rate than the members of the zone. Once you become a part of the zone you can’t appreciate or depreciate your currency because it’s a common currency which is not under your control. This is one of the major reasons for the devastation of many countries in the zone today such as Greece. Once you’re a part of it, leaving the zone is not an option for the countries like Poland as that can result in currency depreciation to the extent that households and businesses would go bankrupt and the banks will become insolvent, in short, a total breakdown of the economy of the nation. Another front where joining the euro zone would be a concern would be increased prices of small ticket items purchased on a mass scale, named as the “cappuccino effect”. Even after the disasters faced by some countries in the euro zone, most experts are in favour of joining the euro zone, arguing that the resultant growth of GDP (especially in the long run) would far outweigh the criticisms noted above. There is a lot of excitement amongst the public regarding the euro. The decision for its adoption is yet to be taken and it has already started affecting the interest rates and currency at which households take loans, and corporate and the government issues bonds. The lowering of interest rates to meet the set conditions has already resulted in an increase in investments. But this comes with its own
Pratibimb | January 2012 | 16
set of risks. This lowering of interests would have taken the country to the interest levels desired by the euro zone had the economic boom continued. But the reverse happened resulting in higher interest rates and a drying-up of foreign financing. This anticipation behaviour of euro adoption is leading to one more problem. people have started taking loans in other currencies and not their own. This would lead to domestic monetary policy gradually losing its ability to influence the economy. Also, borrowing in foreign currencies exposes them to the risk of annex change rate depreciation. Euro adoption would eliminate such currency mismatches and thus relieve both borrowers and investors from the risk that the exchange rate will move against them. It is thus a win-win situation for both sides. Portugal’s experience suggests that the “structural” fiscal deficit—the deficit corrected for the economic cycle—should be well below the 3 per cent Maastricht limit, especially for countries like Poland where the level of public debt is still high. This would allow the government to deal with economic shocks—such as the loss of competitiveness experienced by Italy’s and Portugal’s textile industry—without ending up in the EU’s excessive deficit procedure and experiencing a rise in public debt. Becoming a part of the world’s second largest economy does bring large economic payoffs, but this does not mean that they will be able to reduce their fiscal deficit to 3% while joining the exchange rate mechanism, the two Maastricht criteria that are not met currently. Giving up monetary policy requires sharpening the remaining tools at the policy maker’s disposal--a fiscal policy characterized by small deficits, low debt and flexible spending, as well as creating a nimble, businessfriendly environment. Now it’s for Poland to decide whether they see Euro as a ladder which would take them further or a snake waiting to bite them. And only time can unfold the secrets of the game, I call it “Euro game”.
Financing Indian Infrastructure Sector by Ashley Jose Thomas, FMS Delhi Introduction The Indian economy is booming, with rates of Gross Domestic Product (GDP) growth exceeding 8% every year since 2003-04. This on-going growth is due to rapidly developing services and manufacturing sectors, increasing consumer demand (largely driven by increased spending by India’s middle class) and government commitments to rejuvenate the agricultural sector and improve the economic conditions of India’s rural population. Substantial investment in infrastructure continues to be required in order to sustain India’s economic progress. The country’s capacity to absorb and benefit from new technology and industries depends on the availability, quality and efficiency of more basic forms of infrastructure including energy, water and land transportation. There is a need for large and continuing amounts of investment in almost all areas of infrastructure in India. This includes transportation (roads, ports, railways, and airports), energy (generation and transmission), communications (cable, television, fibre, mobile and satellite) and agriculture (irrigation, processing and warehousing). The key issue pertaining is with respect to the financing of these projects. In the past, government took the whole responsibility of financing these projects. As per the Eleventh Five Year Plan the amount of investments required for infrastructure is almost Rs. 20 lakh crores. Government led infrastructure financing and execution cannot meet Pratibimb | January 2012 | 17
these needs in an optimal manner and there is a need to engage more private investors for meeting these needs. Even though the Indian financial system has adequate liquidity, the risk aversion of Indian retail investors, the relatively small capitalisation of various financial intermediaries requires adoption of innovative financial structures and revisiting some of the regulations governing the Indian financial system. In addition to above, various regulatory initiatives and market reforms are required to enable the commercial banking system to participate more vigorously in providing infrastructure financing. Let’s analyse each of these aspects in more detail. Five Year Plan & Infrastructure Infrastructure development has been lagging as historically we have a poor record of meeting targets. First two years of the Eleventh Five Year plan have already seen a deficit in the planned and awarded projects. According to government data, close to 60% projects are already affected by time and cost issues. According to Mckinsey, a global consultancy firm, if the current trend continues over the Eleventh and Twelfth Plan periods (2008 – 2017), India could suffer a GDP loss of USD 200 billion (around 10% of its GDP) in fiscal year 2017. The biggest challenge faced by the infrastructure development in India is the lack of available financing. The core infrastructure sectors would face a shortfall of USD 150 billion – 190 billion in financing during the eleventh plan period. This is equal to 35% of planned investment in core sectors over this period.
my, annual returns here are often near zero in real terms.
Infrastructure – Deficit and Eleventh Plan Physical Targets Table 1: Infrastructure- Deficit and Eleventh Plan Targets
Challenges in Infrastructure Financing
Sector Roads/ Highways
Deficit
Eleventh Plan Targets
65,590km of NH comprise only 2% of network; carry 40% of traffic; 12% 4-laned; 50% 2-laned; and 38% single-laned
6-lane 6500km in GQ; 4-lane 6736km NSEW; 4-lane 20,000km; 1000km Expressway
Ports
Inadequate berths and rail/road connectivity
New capacity; 485m MT in major ports; 345m MT in minor ports
Airports
Inadequate runways, aircraft handling capacity, parking space and terminal buildings
Modernize 4 metro and 35 non-metro airports; 3 Greenfield in NER; 7 other Greenfield airports
Railways
Old technology; saturated routes; slow speeds (freight: 22 kmph; passengers: 50 kmph); low payload to tare ratio(2.5)
8132km new rail; 7148 km gauge conversion; modernize 22 stations; dedicated freight corridors
Power
13.8% peaking deficit; 9.6% energy shortage; 40% transmission and distribution losses; absence of competition
Add 78577 MW; access to all rural households
Telecom/IT
Only 18% of market accessed; obsolete hardware; acute human resources shortages
Reach 600m subscribers – 200m in rural areas; 20 m broadband; 40 m Internet
Characteristics of Infrastructure Finance 1.
2.
3.
4.
Longer Maturity: Infrastructure finance tends to have maturities between 5 years to 40 years. This reflects both the length of the construction period and the life of the underlying asset that is created. Larger Amounts: While there could be several exceptions to this rule, a meaningful sized infrastructure project could cost a great deal of money. For example a road or power project around USD 200.0 per project. Higher Risk: Since large amounts are typically invested for long periods of time it is not surprising that the underlying risks are also quite high. The risks arise from a variety of factors including demand uncertainty, environmental surprises, technological obsolescence, political and policy related uncertainties. Fixed and Low (but positive) Real Returns: Given the importance of these investments and the cascading effect higher pricing here could have on the rest of the econo-
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1.
Non-Channelized savings: India’s saving rate is very high but most of this is in physical assets. These savings are not channelized towards infrastructure because of lack of long term savings in the form of insurance and pension.
2.
Asset- Liability mismatch: Most of the banks are hesitant to finance the infrastructure projects because of the long term nature
Figure 1: Banks' loan share towards infrastructure
of these loans on one hand and short term deposits on the other. 3.
Debt markets are not fully developed: Debt market in India mainly comprises Government securities, short term and long term bank papers and corporate bonds1. Still there are a few challenges before the policymakers in terms of development of the debt marketsEffective market mechanism Robust trading platform Simple listing norms of corporate bonds Development of market for debt securitisation
4.
Regulated Earnings - Earnings from projects like power and toll (annuity) may be regulated leading to limited lucrative options for private sector and difficulty for lenders. Also any increase in input cost over the operational life is very difficult to pass on to customers due to political pressures.
5.
Limited Budgetary Resources - With widening fiscal deficit and passing of FRBM act, government has limited resources left to meet the gap in infrastructure financing. Rest of funds have to be met by equity / debt financing from private parties and PSUs.
6.
budgetary allocations. As a result, the role of private investment through public-privatepartnerships (PPPs) in infrastructure projects assumes greater significance in delivering the Eleventh Plan targets. Recently, legal and regulatory changes have been made to enable PPPs in the infrastructure sector, across power, transport, and urban infrastructure. For example, the Electricity Act allowed for private sector participation in the Distribution of electricity in specified area(s) of the distribution licensees under the role of a “franchisee”. The recognition of the franchisee role is a significant step towards fostering PPP in the distribution of electricity. India Infrastructure Finance Company Limited (IIFCL) India Infrastructure Finance Company Limited (IIFCL) has been set up as a nonbanking company for providing long-term loans for financing infrastructure projects that typically involve long gestation periods. IIFCL provides financial assistance of up to 20 per cent of the project costs, both through direct lending to project companies and by refinancing banks and financial institutions. Solutions and Alternatives Some of the options before us which can be explored to overcome the mentioned challenges are – 1.
Priority Sector Status to Infrastructure – Currently banks have to lend 40% of their total loans to priority sector which includes small scale industries, education, agriculture etc. Infrastructure is not a part of the priority sector currently. Assigning of priority sector status to Infrastructure would witness more inflows of funds.
2.
CDS, developing debt markets – Currently Credit Default Swaps (CDS) are not available for corporate bonds and unrated infrastructure bonds and RBI is in the process of introducing them. Foreign Institutional In-
Regulatory Constraints - There are lot of exposure norms on pension funds, insurance funds and PF funds while investing in infrastructure sector in form of debt or equity. Their traditional preference is to invest in public sector of government securities.
New mechanism for infrastructure financing – PPP The ambitious target of Rs. 20,56,150 crores investment in infrastructure in the Eleventh Five Year Plan is constrained by the limitations of 1
Due to tax breaks and declining interest rates, infrastructure bonds have been emerging as a key source (contributing to around 16.0% of infrastructure financing in 2003) - Infrastructure finance report of ICICI Securities - September 2003.
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vestors (FIIs) also invest large amounts in debt instruments but these are mainly government securities. India has a welldeveloped equity market but the same is not true for debt market. Debt markets in India have to be revamped so that the infrastructure can also attract a significant portion of these funds2. 3.
Using Foreign Exchange reserves – India’s foreign exchange reserves currently stand at USD 320 billion. According to GuidottiGreenspan model, a country’s Forex reserves should be equal to its short term debt. Going by this definition India’s short term debt is roughly USD 65 billion which means India’s four-fifths of foreign exchange can be utilised for other purposes. The Deepak Parekh committee is also in favour of utilising a portion of this forex for infrastructure. Countries like Singapore have done this previously.
4.
Increasing the CAP on institutional investors – Currently insurance companies face a cap of 10% of funds invested in infrastructure sector. An increase in this cap would bring in more investments from institutional investors like pension funds, PF funds and insurance companies.
5.
Tax free infra bonds by banks – Currently only NBFCs can float tax free infrastructure bonds. If banks are also allowed to float these bonds, they can raise long-term resources for infrastructure projects, thus reducing the asset liability mismatch.
6.
Rationalising the tax treatment on unlisted equity shares – Unlisted equity shares attract larger capital gains tax than listed ones. Currently capital gains on unlisted eq2
uity shares are taxed at 20% instead of 10% for listed equity shares. Most private players in the infrastructure sector are not able to raise capital through public issues. Therefore for these players unlisted equity will be their dominant source of equity capital. Therefore they are adversely affected because of the tax treatment meted out to unlisted equity shares. Hence special consideration should be given to private players in the infrastructure sector to encourage investments. 7.
Securitization of loans - The loans given to infrastructure project consortiums by banks are not secured & fall under the unsecured loans asset class for banks. Currently RBI mandates that provisioning of such unsecured loans is kept at 15% (additional 10% for substandard unsecured loans). Therefore total amount of loans to infrastructure projects are constrained because of the substandard unsecured nature of these loans. The primary source of repayment of these loans is the future cash flows accrued from the project once they are completed and ready for public use. These cash flows can act as a security under certain conditions and debt covenants. For instance in case of road/ highway development projects, RBI passed an order that a) annuities under Buildoperate-transfer (BOT) model and b) toll collection rights where there are provisions to compensate the project sponsor if a certain level of traffic is not achieved, be treated as tangible securities.
8.
Transforming IIFCL – The government should transform IIFCL into a specialised body that can refinance infrastructure loans from banks and NBFCs or would purchase infrastructure loans, re-package them as
This was also commented upon by RBI in its annual report for year 2002-03 - “The experience since the late 1990s suggests that a key prerequisite for the evolution of institutional arrangements for infrastructure financing is the development of the capital market. The central issue is not the adequacy of funds but the convergence of investment horizons of ultimate savers and borrowers in the economy. This, in turn, warrants intensifying reforms in insurance and pension funds which provide a natural hedge for the risks inherent in the financing of infrastructure.”
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credit-enhanced securities and sell them to other investors’ mainly insurance companies and pension funds.
Morris, Sebastian (2003); “Efficacy of Government Expenditures”, India Infrastructure Report, 2003
Nachiket Mor and Sanjeev Sehrawat (October 2006); “Sources of Infrastructure Finance”, Institute for Financial Management and Research Report, 2006
References McKinsey&Company (2007); “Building India: Transforming the nation’s logistics infrastructure”; Infrastructure Practice Report, 2007
PricewaterhouseCoopers (2008); “Infrastructure in India: A vast land of construction opportunity”; India Infrastructure Report, 2008
Malhotra, Sandeep and Kamal Nigam (2003); “Infrastructure Finance in India”, ICICIresearchcentre.org and CAFS Working Paper, July 2003
Mohan, Rakesh (2003); “Infrastructure Development in India: Emerging Challenges”, Working Paper presented at the World Bank Annual Conference on Development Economics, Bangalore, May 2003
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The Secretariat for the Committee on Infrastructure (2009), Planning Commission, Government of India; “Financing Infrastructure Projects through the India Infrastructure Finance Company Limited (IIFCL)”, May 2009 Infrastructure Development Finance Company (2010); “Infrastructure Development in a Low Carbon Economy”; India Infrastructure Report 2010
A Tryst with Dr. Soans at Moodibidri Written by Prof. Kushankur Dey, Assistant Professor (Finance), T A Pai Management Institute, some portions of the article adapted from Dr L. C. Soans’ archival databases what Dr. Soans handed over to me during the conversation. Prof. Dey can be reached at kushankur@tapmi.edu.in
It was December 5, 2011. A group of ICICI Bank officers, training consultant, Mr. Sunil, Prof. K. J. Jaims, and Prof. Sanal accompanied the journey to reach a far-flung area, about 50 km away from TAPMI campus. Farm is popularly known as “Soans” farm. Though the objective of journey was to train officers under the beauty and bounty of nature, I took this as an opportunity to interact with Dr. L. C. Soans in between. Following the welcome drink served by one of the farm’s employees, Dr Soans greeted everyone saying that everyone should roam around the farm. Moreover, his delighted face signified that so called “management” education can meet its learning goals through “experiential” learning without a territorial boundary. “Adequacy of learning needs to be attained by an appropriate learning environment”, he added at the onset of Sunil’s “creativity” session. Let us familiarize with the farm for a while. Soans farm, an hundred acres of lush green areas in lateritic soil, is located about 40 km away from Mangalore on the national highway 13 (NH-13). It has developed over years as a centre for innovative agriculture. Traditional agriculture in this area was restricted to the valleys with perennial water supply for crops like areca nut, coconut, banana and rice. Way back in 1926, an attempt was made to bring into useful cultivation in hilly areas and in non forested grasslands which Pratibimb | January 2012 | 22
are dependent only on the seasonal monsoon as source of water. Rainfed agriculture has been predominant in these areas throughout years. The interview session with Dr Soans took almost an hour. The following transpired in the course of discussion:
Kushankur: “Sir, can you brief the history of Soans farm?” Dr. Soans: “Well. I should narrate the long story in short. Basel Mission, a Swiss-German missionary organization ventured into a pilot agricultural project under the leadership of Rev. Fischer, a missionary based in Karkala. Alfred Soans, a young agriculture graduate was employed in 1928 to pursue the project by his heart and hand. Because of the shallow soil over the laterite beds and the lack of irrigation, the initial coconut plantation did not appear”.
Kushankur: “Can you recall some of innovations that those your father and you brought in?” Dr. Soans: “This kind of inquiry always makes me nostalgic. My father brought in many innovations like intercropping with several new crops like pineapple which saved the situation. The low price of agricultural produce and the start of the Second World War were a great setback. The Germans who became enemies of the then
British rulers had to leave. The local church, which became the custodian of the farm could not support it and planned to sell the land. My father, who had put a lot of effort, prevailed on the church to save the farm. Eventually, he was given charge of the farm on a lease. Post-1947, the agricultural situation improved. Further innovations like farm mechanization and improved irrigation practices made possible the expansion of the farm from 46 acres to nearly an hundred acres. Agriculture was further diversified and more new crops suited to the land, climate and the market were introduced. While pineapple continued to be a major crop, corps like mango, sapota, pepper, cinnamon, nutmeg, cocoa, cashew nut, coconut and vanilla made possible round the year utilization of the land and further employment opportunities for the local population. At present the farm is managed by me and my younger brother, Mr. I.V. Soans, a fruit technologist by training. Horticultural development is further strengthened by a nursery section and a fruit processing plant. The cropping pattern has evolved into a multistoried mixed cropping, ecologically sustainable model, for visiting farmers from across the country. It has also become a popular destination for foreign tourists to see the variety of spices and medicinal plants”.
Kushankur: “Fantastic description. I am interested to hear about tourists since your farm seems to be a centre of Eco-tourism”. Dr Soans: “Yes. Prof Dey, you are correct. Cruise ships docked at the Mangalore port and groups of tourists took a day-trip to Karkala to visit the 42 foot monolithic statue of Bahubali, a Jain saint and the 15th century thousand pillared temple at Moodibidri. Meanwhile, they stopped at Soans farm as a restive spot where rest room facilities are provided. They had their feast under the fringes of mango trees and got a chance to take a tour of the farm and captured the photographs of different tropical fruits and spices which they often use in their diet but do not get the chance to see the actual plants prior to visiting the farm. Soans farm has also diversified into Eco-tourism with guest houses in the farm for those interested in nature, bird watching and study of the tropical Pratibimb | January 2012 | 23
rainforest nearby”. Kushankur: “What are the products commercially available in your farm?” Dr Soans: “Our objective is to sustain the farming which is why marketing the products is essential. Prima facie, commercially available product in the farm are pineapple, coconut, pepper, mango, guava, nutmeg, cinnamon, cardamom, mace, vanilla, banana, rambutan, mangosteen, durian, barbados cherry, surinam cherry, passion fruit, cocoa, bamboo, jack fruit, Rangoon cherry, star apple, star fruit, rose apple, custard apple, egg fruit, mulberry, allspice, clove, cashew nut, breadfruit, butter fruit, gooseberry, yam, areca nut, coffee and different varieties of ornamental and fruit plants. Processed pure juice and RTS are also available”.
Kushankur: “I come to know about your farm practicing energy healing. Can you elaborate on this?” Dr Soans: “I appreciate your inquiry to this practice. You may be aware that health and sickness have been part of human existence over the ages. Throughout the centuries many methods of healing have been developed. Herbs provided the main sources of medicine for various ailments. Many animal and mineral products have also been used. The contribution of a proper diet has also been recognized in such system as Naturopathy. The modern Allopathic system of medicine has witnessed the development of a large array of drugs in pure form obtained from chemical and biological sources. The Ayurvedic and other ancient systems have largely retained a drug combination obtained from herbal and other sources without purification of the active principles involved in healing. In my farm you will find a range of healing types, namely, Pyramid energy, Pranic healing and Reiki, Medicine wheel, the Labyrinth adapted from various countries in different time period”.
Kushankur: “What are your next agendas or tasks enlisted for 2012? In my view, your entrepreneurial ability will encourage others to grow with nature organically. May I request you to allow me to write a case on Soans farm?”
Dr Soans: “Health Tourism. I mean it. Oh! You want to showcase my farm through writing. I will tell your professors to support our farm providing human resources, advices or technical know-how on natural resource management which is need of the hour”. After an hour-long discussion, it appeared me that classroom teaching is not effective unless practical exposure accentuates the learners to do things practically. It is neither science nor art. It is
practice which shapes the individual to become an entrepreneur. I am not using any buzzword like “social” or “venture capitalist”. Today, these are fad. Entrepreneur is one who knows, understands, and preaches to sustain his /her venture in the soil with “grey” and “sweat” equity. This is not ending. It is beginning of the entrepreneurship edition. Readers, you can expect that in next issue something more is awaiting.
Ms. Mohini Gupta (PGDM 1996-1998) Alumnus of the Month – January 2012 The Alumni Affairs Committee (AAC) is pleased to announce Ms. Mohini Gupta (PGDM 1996-1998) as the Alumnus of the Month (AoM) for January 2012. After completing MBA from T.A. Pai Management Institute in 1998, Ms. Mohini started her career with Wipro Technologies, when she joined the HR team at the Hyderabad Development centre. She then moved to Bangalore as the HR Manager for Manufacturing & erstwhile Corporate verticals. From 20012006 she took a break in her professional career, as she spent time in the US and UK with her family. On her return to India, she joined Wipro Consumer Care & Lighting (WCCLG) where she lead the Business HR function for the Consumer care and Trade lighting business between October 2006 to December 2010. In WCCLG, she played a pivotal role in driving initiatives like EPS and HR Automation. She also drove their campus recruitment across B-Schools and was responsible for the Management Trainee program. Ms. Mohini moved from Wipro Consumer Care and Lighting to Wipro Technologies in December 2010. In her current role, she has been leading the International HR Strategic enablement initiatives which include Engagement, Branding, Communication & Analytics for International locations. Among her early assignments in this role, Ms. Mohini spearheaded and submitted Wipro Technologies entry for the Association of Diversity Council awards, which was placed at second position after US Navy. Ms. Mohini is also a part of Mergers and Acquisitions team. She was the HR SPOC for integration, for the recent SAIC acquisition by Wipro Technologies, in the ENU vertical. Apart from leading all central initiatives in HR across geographies outside of India, she is also a member of the Prevention of Sexual Harassment Committee at Wipro. Ms. Mohini has done her Bachelor’s degree in Psychology. She lives in Bangalore with her husband, Ashish and two children, Dhruv and Diya. She loves to travel and enjoys adventure sports. - by Alumni Affairs Committee
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IPRS—Is the Name of the Game by Vikash Kumar, IMI New Delhi
The time when the top most B-School of country, the Indian Institute of Management (IIM), Ahmedabad published its 2009-11 batch’s placement report adopting its Placement Reporting Standards in June, they did not know its consequences. The report was externally audited, as per the standards, for which the institute had consulted the credit rating agency Crisil. They issued a detailed 31 pages report which had every hidden aspect of their placements and compensation offered by the companies. Later this year, big names joined the bandwagon, hoping to bring transparency in their placements reports and to achieve a standard across the all B-Schools. But before start bowling anything against or for IPRS one should know the pitch and the playground well, i.e. what is the current scenario of management education in India. MBA education in India - was started around 50 years ago reached its peak last decade. Today an MBA degree is a passport to a good career - a career which extremely rewarding and highly challenging. Post liberalization, the economy of India has seen a rise in the demand for MBA graduates. Firms from a variety of sectors - ranging from IT, Financial Services, Manufacturing, Telecommunication, FMCG, Banking, Retail and Consultancies - started hiring MBA graduates from Indian b-schools. Pratibimb | January 2012 | 25
The conditions have been improved in last 4-5 years as the salaries offered at premier B-Schools of the country have been grown and in quite a few cases have more than doubled. There is an increase in the international placements as well especially in financial consulting sector. It is a matter of pride to get placements in the "Big 4" consulting firms and in some of the top investment banking companies in the world. The salaries of such placements can go anywhere between US$ 60,000 per annum and US$ 1, 50,000 per annum. These Ivy League b-schools also take pride in finishing their placements within first few days of their placement weeks. It is common for students of such b-schools to have more than one offer at hand. Every such school then been ranked on the basis of the “average starting salary” along with other parameters. Each and every college is fighting to lure more applicants on the basis of last year’s average salary by posting their placement reports on their websites, journals and other media. When everybody was enjoying this game IIMA has decided to change the rules by introducing IPRS. Now in this current scenario, the Indian placement reporting standards (IPRS) — which aim at adapting the American MBA CSC Standards to an Indi-
Here are some of the figures from the survey conducted by iimjobs.com â&#x20AC;&#x201C; These numbers were collated based on salary data administered between May 16 to 31, 2010 with over 5600 MBA graduates sharing their salary data anonymously. Average Salaries for Sales & Marketing Sector
Average Salaries for Finance Sector
Average Salaries for Systems (I.T) Sector
Average Salaries for Consulting Sector
Source*: http://trak.in/tags/business/2010/06/14/top-mba-business-b-school-salary/
an background and dictate corporate firms recruiting from B-Schools to clear the hidden sides of compensations they offer. The MBA Career Services Council (U.S.) is the provider of education, information and expertise for the support and development of individuals in the MBA career management and employment professions in U.S. and abroad. They provide education, professional development, networking opportunities and support for their membership and the MBA career services and recruiting industries as a whole. Abiding to the basic architecture of MBA CSC, IIM-A were able to develop such standards for Indian context which is first of its kind. In first year of IPRS, standards were agreed by firms that hired around 210 students of the total 312 placements at IIM-A (according to placement reports). But nobody denied the fact that there were few companies which appreciated the initiative taken but also emphasized that the change would be a Pratibimb | January 2012 | 26
slow but sure process which would depend on other big names adapting the IPRS thereby forcing more firms to be transparent. Authorities at IIM-A also said that they have a plan to report this yearâ&#x20AC;&#x2122;s placement statistics for both groups separately. The institute opened the discussion at a conference (Saturday, June 18), which was attended by 33 Indian business schools. IIM-Shillong, IIM-B, SP Jain, JBIMS, NITIE, IIFT, IMT-G were among few who attended the conference. The rest of the b -schools like other IIMs, ISB Hyderabad and XLRI Jamshedpur were conspicuously absent. Four recruiters (McKinsey & Co, Booz & Co and HUL) were also present there but it seemed that they have already incorporated the standards and so left the conference in midway. Others big names included media houses Business Standard, Mint, The Economic Times, Business Today, and Business world and rating agencies also attended
the meeting. The long conference reached a consensus on making several big and small changes to the first draft of the standards. Mainly among the changes was elaborate the CTC (Cost to Company) salary communicated in placement reports to Maximum Earning Potential (MEP), which the conference felt was more appropriate and more representative of compensation that included performance-linked variable pay. It was also decided to detail the information about summer placements and attributes related to that like how many were arranged by B-Schools and how many were self arranged by students. Also the stipend structure whether paid or non-paid. It was also agreed that b -schools can release an unaudited report initially to the public and the media. But they have to issue the standardized placement report (the real thing) after three months. So what were the objectives cited by IIM-A in its first IPRS proposal? IIM-A issued its draft proposal this year and school has mentioned the key aims of the standard in revision 2.0 of the report. The key aims of the standard are: 1) To cater to the placement related information requirements of all the stakeholders involved; the key stakeholders being the candidates, recruiters, the B-school, media, ranking agencies and prospective students. 2) To enable the candidates to do a fair comparison not only across various professions, but also across individual firms, and across different roles offered and their specific parameters. 3) To give access to in-depth information about placements to the media. This would enable the media to have better insights into the placement process, and would also reduce chances of misinterpretation, especially while comparing information from two or more B-schools. 4) To ensure MBA employment reports are used in fair and accurate manner to attract students and employers. 5) To help B-school aspirants in making a well Pratibimb | January 2012 | 27
informed choice, thereby resulting in more realistic expectations on their part when they join a Bschool. 6) To provide prospective students and employers with a reliable way of comparing placement statistics of one B-school to another. 7) To enable ranking agencies to obtain placement related statistics across B-schools in a standardized format. *Source: www.iimahd.ernet.in This gives a vague idea behind the formulation of such standards. The IPRS is first step towards standardizing the placement processes at B-School and making it transparent for both the parties (Recruiter and MBA aspirants/applicants). It was proposed that there should be no concept of lateral placement because it was often wrongly used as an excuse to permit the most-preferred recruiters early access to students (including fresher). But the standards as such, therefore, will be quiet on the subject of how laterals (graduates with prior experience) fared in the placements. Yet, the need of experienced MBA aspirants to learn about their chances of employment post-MBA is a real deal and it would be interesting to see how this section will respond to the standardized placement reports. We can only speculate but the best way would be to include laterals information under the ‘additional information’ section and not alienate applicants with work experience. After all the hoopla about IPRS, the question which still remains is how will IPRS become the sector standards? We are talking about the diversified sector where we have few Ivy League Bschools with “AAA” rating which represents only top 10% of the sector. The democracy driven country also have B-schools which is being rated “B” and goes down further, and mind you, rest 7080% MBA graduates come out from these colleges where most of the executive level recruitments have been done. Here we are talking about pushing a recruiter to have a compensation policy both
transparent and lucrative for these 2nd and 3rd tier b-schools. The other aspect is the recruiters who come to second and third tier b-schools are those which have not been able to fill up their requirements at the IIMs. It makes clear that only toprung b-schools will be more optimistic about the IPRSs. But to make IPRS as sector standard the need is to add a huge number of new resources and processes to the placement procedures in order to document the detailed salary components and placement figures continually. As a result none of the others would be committed to adhering to them fully right away, but we could still expect few of them joining the bandwagon and might start adhering to parts of it in the coming years. And rest may wait and watch a real example first.
After singing all the pros and cons we can say that IIM-A has done a tremendous job of taking this initiative for being transparent about both its own experience with adopting the standards and raising its voice and building consensus with stakeholders. The IPRS is a well-intentioned and bold move by IIM Ahmedabad and if triumphant, will help in making the picture more transparent inside the single information parameter that (for worse or better) lies in the nucleus of Indian b-school boom – “the average starting salary”.
Inviting Articles “Best Article” of this edition: Ashley Jose Thomas, FMS Delhi
Congratulations!! The winner will receive a cash prize of Rs. 1000 & a letter of appreciation. We are inviting articles from all the B-schools of India. The articles can be on any field of business from Marketing, Finance, Operations, HR to Systems. You can send us articles on:
Recent developments or trends in any of these fields
Articles covering latest trends, innovative practices, strategies, etc. in the global perspective
We also invite articles on management thinker similar to the current section
Apart from above, creative works in relation to any of the fields will be equally appreciated The best entry will receive a letter of appreciation and a cash prize of Rs 1000/-. The format of the file should be MS Word doc/docx. Articles should not be more than 2500 words. The last date of receiving all entries is 24th February, 2012. Please upload entries at http:// www.tapmi.edu.in/student-life/pratibimb/participants-submission with file name as BAC_<ARTICLE NAME>_<INSTITUTE> by 24th February, 2012.
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Re-Defined HR Function by Tuneer Chatterjee, STEP-HBTI “When we learn something from each other, we're formed by the experience.... we are authors of each other” - Doc Searls HR as in human resource is a department in any organization or firm is responsible for taking care of well being of the employees. It provides a number of factors that can be measured to show how HR contributes to the business. HR is now a key role in developing and implementing corporate strategy as well as becoming a high-valuedadded part of organization. HR Metrics provides a platform for measuring the analytic and data based decision-making capability to influence business strategy in an attempt to make business better decision and transform HR into strategic partners.
Over the last few years, HR technology, specifically HRMS (human resource management systems), has been widely promoted to increase the efficiency and effectiveness of HR departments. However, despite the availability of a “container” capable of holding meaningful measurements and metrics, the actual development and utilization of measurement and reporting practices appears to be lagging. The most discussed topic in the HR industry today is metrics and measurement. From professional organizations like the Society for Human Resource Management (SHRM) and the Human Capital Institute (HCI) to HR gurus and white papers from management consulting firms like Deloitte Consulting, the topic of metrics is covered extensively. It can be quoted here that “HR Metrics is a much-touted and underutilized initiative”.
The major HR-metrics are stated below:
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Efficiency of the HR functions: It explains how efficient the HR is in doing their administrative work. (Boudreau; Lawler & Levenson, 2004) The data can be gathered in database and the multi-company database allows companies to compare the performance of their own HR department with HR departments in other companies. The following are some of the parameters of efficiency of the HR functions: (Kavanagh & Thite, 2009)
Cost per hire: It is the cost associated with a new hire. It is not only important to know how much it cost in hiring, but it is also important to see if the money spent is used to hire right people. (Boudreau; Lawler & Levenson, 2004)
Time to fill up the open position: It is the total days to fill up a job opening per job. The shorter the time, more efficient of the HR department in finding the replacement for the job.
HR expense factor: It is the ratio between total company expense and HR expense. It shows if the expenses on HR practices are too much in terms of the whole company expense.
Effectiveness of HR-Functions: It shows whether the HR practices have a positive effect on the employees or the applicant pool. This is very important for HR because they are regarded as the leader for acquiring, developing and helping to
deploy talent. (Boudreau; Lawler & Levenson, 2004) The following are some of the examples on effectiveness of the HR functions: (Kavanagh & Thite, 2009)
Training ROI (Return on Investment): It is the total financial gain an organization has from a particular training. It shows the effectiveness of the training program and how much it can benefit to the company after the training. It can be directly be showed by the employees being trained. Training metrics— they are used but not to the level that they need to be to ensure readiness and productivity. Absent rate: It determines that the company is having an absence problem from the employees. It also reflects the effectiveness of the HR policies as well as the company’s own policies. It always goes along with employee satisfaction.
Developing company’s core competency: It helps to demonstrate the connection between HR practices and the tangible effects on organization’s abilities to gain and sustain their competitive advantages. This approach often treats employees as their human capital instead of the expense. (Boudreau; Lawler & Levenson, 2004). The following are some of the examples on effectiveness of the HR functions: (Kavanagh & Thite, 2009)
Revenue factor: It indicates the effectiveness of company operation with the use of the employees as their human capital.
Defect rate: It indicates the number of defects products in the operation. The lower the defect rate, the more effective the HR practices in developing company’s core competency in terms of reducing cost.
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On the contrary it can be said that:“Everything that counts can’t be measured and everything that can be measured does not count.”
HR is increasingly being expected to provide quantitative, as well as qualitative, information about the organization’s human capital. Where the shift is from expense control to increasing ROI, it becomes important for HR metrics to be redefined. “We have a tendency to focus on reporting measures as opposed to true analytics that answer the ‘so what’ questions related to strategy.” It is believed that HR needs to focus on metrics outside the purview of HR to make the biggest impact on the corporation. HR (as a whole) needs to better understand each department and the organization as a whole before making strategic HR decisions. HR will need to find creative ways to track the virtual workforce. It’s commonplace to support telecommuting and more metrics need to be in place when tracking those with flexible work schedules. The predicted trend in HR practice these days is to build upon what departmental managers are interested in to incorporate what interests top management—how human capital impacts the execution of strategy.
The initial question focused on which human capital metrics to use; now the question is how metrics can help plan strategy. Frear wrote about it as a movement toward “transformative HR” wherein recognizable stages emerge, and the first stage in this transition is for the HR professionals to understand the business realities that the organization faces.
Fit of Social Media with Existing Marketing Strategies By Sangeetha Kesav | Amit Sikdar, IIM Bangalore Social Media Marketing is becoming one of the most effective means of marketing. Range of companies and products leverage Social Media, especially small and medium businesses to enable them to compete at equal footing with the sector majors. Usually B2C companies use social media marketing. Consumers use social media to get the information, feedback and opinion of different people before buying a product. 360BuzzAds Pvt. Ltd. claims to be the first integrated Social Media Marketing engine which helps businesses monetize Social Media by growing their online user engagement. Mr. Subramanya R Jois, CEO of 360BuzzAds Pvt. Ltd. says that the number of people visiting the forum mall in Bangalore has increased from 40,000 to 60, 000 on an average during the weekdays after the usage of social media marketing.
a very bad impact. So the companies should keep track of the negative feedback and should take action.
Resources should be allocated to keep track of the post and reply to the users queries.
Social Media: the game changer:
Social media has provided, both existing and prospective customers a channel to voice their opinion in much more powerful way than ever. Any company trying to ignore it would risk losing market share and reputation in long run. Earlier, relation between a company and its customers were either:
Benefits to companies using social media:
Used to build Viral communities across Social Networks, reducing cost and time to Market.
Availability of Face book on mobiles has enabled companies to reach customers more easily.
Companies can receive qualitative feedback from users easily.
They can also leverage it to promote their products and convey any offer/discount.
Cons of using social media:
There are chances of customers of another product giving some negative comments or opinion about the product. That would have
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One to Many: With companies having the higher ‘preaching’ ground and unidirectional communication through various advertising mediums
One to One: Mainly while addressing customers’ complaints, occasionally during promotional events However, now with advent of social media bandwagon companies need to realize and treat social media channels as an important complimentary channel to their existing marketing channels, which unlike others enable two way communications and hence, often perceived as a threat by many marketers who now need to be answerable and more responsible in terms of their strategies as the communication has now turned to become Many to Many.
Many to Many: In fact, as the following figure shows that since the world wide web has equipped customers’ with the tools and abilities to interact with each other, irrespective of geographical boundaries, companies have been forced to use the same channels to engage with the customers in a bi-directional communica-
tion, initially only to minimize the damage but now to maximize their value proposition delivery. Reasons for using Social Media Marketing:
Source : 360Buzz Ads.com
Mary J. Culnan et al, (2010) have discussed on how firms should use social media to interact with customers and how their use varies by industry. They also stated that in order to gain benefit from social media, firms need to develop implementation strategies based on three elements: mindful adoption, community building, and absorptive capacity. The reasons for using Facebook by companies of various sectors identified by 360BuzzAds are for Branding/awareness, Engagement, Transaction, Loyalty and Recruitment purpose. Branding/ Awareness FMCG companies extensively leverage digital marketing for brand awareness. They have different pages for the different products they offer. Information on promotions, gifts and greetings are updated frequently. Videos, pictures and Store
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locator facility of the product are shared in their page. Loyal users of the brand create communities which help in viral marketing. Engagement Few brand pages look beyond brand awareness. They engage with the customers by conducting surveys, quizzes and polls to find the expectations from the customers. Some of them also reward the users for these events. They appoint a person to answer all the queries of the user which can happen through text or video chat. For example in Apollo hospital Facebook page people used to query the availability of the doctors. This brings an attachment and satisfaction of the customer towards the product/service. Social Commerce/Transaction Companies also use Facebook for the transaction purpose. Customers can buy the goods directly from the link provided in Facebook. The transaction will take them to the payment gateway where they can pay for the product. This is very mostly used by the retail companies. Sometimes exclusive discounts are offered for Facebook customers. There are few products that cannot be sold online via Facebook like baby foods and supplements, medicines and liquor due to the regulatory norms. So the companies selling these products can only use Facebook for awareness and not for transaction.
Loyalty Companies were found to encourage loyalty amongst their existing customers or signalling benefits amongst potential customers by giving special discount, some meant for Facebook users only, on the basis of number of purchase and for inviting their friends to join the page. To further reward loyal behaviour and continuous â&#x20AC;&#x153;followingâ&#x20AC;?, some companies maintain leader boards, with leaders determined through their contribution to discussions and participation in contests, etc. Recruitment Now companies have started uploading the job notifications on the Facebook page. People also use this medium to enquire about the job requirements and vacancy. Summer interns and new joinees query about their joining date and posting location. Tools used by companies to analyse the inputs from Social Media:
Twitter Sentiments Tools like Twitter Sentiment are used to find the positive and negative sentiment of people commenting on a particular topic in Twitter. This will
Twitter Sentiment for Apollo
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help companies to track the negative sentiments and work on it to resolve it. Social Mention Social Mention is another website that provides statistics related to use of a keyword on various social media platforms, similar to ‘Google Alerts’ but more focused. A snapshot of the website is shown below with the search term ‘Apollo’ and associated statistics on various social media platforms:
managed. Establishing presence on Social media and announcing its products would not only suffice for a company but it would also have to continuously monitor the on-going dialogue between its existing and potential customers. This could also improve companies’ perception in terms of customer service, garnering positive mentions and corresponding network effects through the social networks of a customer.
To conclude, a check-list of Do’s and Don’ts, especially useful for budding companies trying to gain foothold but equally valid for established ones:
Do’s:
Social Mention for search on Apollo Conclusion:
On one hand Social media (specifically Facebook) provides great opportunity for Small and Medium businesses primarily to increase their reach, on the other hand it could be perilous too if not properly Pratibimb | January 2012 | 34
Define your target customer segment and develop a communication strategy with a proper tone
Develop a style of interaction matching the brand personality one wants to project
Define level of moderation
Use all the possible & relevant applications available as each can enhance or affect one of the five parameters discussed earlier
Try to create apps/games specific to your brand/product, increasing their attractiveness
Focus on loyalty building measures, a part often neglected by many
Keep the sales pitch subtle with more emphasis on ‘Engagement’ to influence customers purchasing decisions
Don’ts:
Use Social media for corporate communication purposes – it is not the right platform to find and address relevant audience, and it will alienate the end customers who usually doesn’t have an interest in this
Forget to regularly update the content and
come up with ideas to keep customers engaged with your brand/product Try to thwart a dissenting customer by engaging in a duel of words or trying to discredit/malign his or her image as this could disenchant other users from actively participating due to fear of similar actions
customer segments; create separate product pages in such cases rather than one single brand page
Varying the aim of communication with different Social media channels which is perceived differently and cause a scattered brand image projection.
Use same page to communicate about different product segments with possibly different
Route to Market Winning Entry of December Edition: Team “THE LAST SAMURAI” from IMI, New Delhi led by Mr. Vikash Kumar. Congratulations !! We thank all the participants for their effort. The entries for this contest have been judged by Prof. Vinod Madhavan, TAPMI. The market has always been unpredictable for the companies. This holds more significance in the case of international brands trying to enter new emerging markets. Every brand wants to be recognized globally so that they can tap the new markets easily. The role of marketing managers in this age of globalization becomes more important in providing the companies with correct strategy to enter new market. We give our readers a platform to experience this challenge through “Route To Market”. The primary objective that the participant is expected to fulfill is to provide a “Market entry strategy” for an international brand/product into the Indian market. The overall strategy would be divided into three stages: Rules:
Brand for which entry strategy needs to be crafted is “merci Finest Selection (Chocolates) ”
Document size should not exceed 4 pages & a maximum of 2 members are allowed in a team
The participant is expected to justify his stand – point in each deliverable
Each stage should be clearly mentioned under sub – heading
Upload entries with file name as “RTM_<TEAM NAME>_<INSTITUTE NAME>” at http://www.tapmi.edu.in/student-life/pratibimb/participantssubmission by 11:59 pm, 24th Feb, 2012
The winner will receive a cash prize of Rs.1000 /-
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Follow us on: Contact Us: pratibimb@tapmi.edu.in / pratibimb.tapmi@gmail.com Team Pratibimb TAPMI Post Bag No. 9 Manipalâ&#x20AC;&#x201D;576104 T- +91 7204494284 www.tapmi.edu.in Pratibimb | January 2012 | 36