The ‘pain in Spain’ will surely bring us more pain, too


Vivek Kaul

The BSE Sensex, India’s premier stock market index, has given a return of 5% over the last one month. This rally has come on the back of the decision of the finance ministers of euro zone (countries that use the euro as their currency) deciding to give a loan of €100billion to weak Spanish banks on June 10. But the euphoria generated by the rescue now seems to be fading.
Rising bond yields
The bond yield on 10 year Spanish government bonds on June 8,2012, a couple of days before the rescue was announced, was at 6.22%. Since then the yield has risen to 6.95%. Bond yield is essentially the return an investor can hope to earn from a bond every year, if he holds onto the bond until its maturity. A rising bond yield means that the investors perceive the bonds to be risky and hence demand a higher return from them.
But what has changed in the last one month for Spain? The euro zone plan was to give loans to Spanish banks which are reeling under property loan losses. But this loan being given to banks needs to be guaranteed by the Spanish government. The Spanish government’s debt to GDP ratio is already at 68.5%, which is on the higher side. And this guarantee would further add to the increasing debt of the Spanish government and thus push up its debt even further. Hence, the demand for increased returns on Spanish government bonds by investors.
Low tax collections
As the government debt rises the government needs to raise the amount of taxes it collects, in order to repay the debt. But given the difficult economic environment that prevails any attempts by the government to raise taxes has a negative impact on overall spending. As people pay more tax and the cost of public services go up, it leads to them cutting down on their spending. Lower spending means lower taxes for the government.
The tax collected by the Spanish government during the first five months of the year has fallen by 1.5%. This even after it increased taxes on income, electricity and tobacco could not make up for a 10% drop in the collection of value added tax. What also brings down the ability of the government to collect taxes is the high unemployment prevailing in Spain. The unemployment rate touched 24.6% in May. The rate is higher than 50% among the Spanish youth. If the government is unable to collect enough taxes its ability to pay interest as well as repay its past debt goes down, increasing the overall riskiness, leading to a higher rate of return demanded by investors. This also means that the government will have to pay a higher rate of interest on any fresh debt that it issues in the days to come.
The basic problem
The Spanish government ran very small fiscal deficits or surpluses for most of the period between 2001 and 2008. But the external borrowing of the country went by 88% to €2.54trillion between 2005 and 2009. Most of this money was borrowed by Spanish banks to finance construction and buying of real estate.
The gross domestic product (GDP) of Spain grew at the rate of 8 percent every year from 1999 to 2008. This primarily happened because Spain went all out and promoted the Mediterranean lifestyle, leading to many people buying homes along its sun-drenched shores. As the demand for homes increased construction became the industry to be in and housing prices tripled over a decade.
Spain ended up building many more homes than it could sell. Estimates suggest that even though Spain forms only 12 percent of the GDP of the European Union (EU) it has built nearly 30 percent of all the homes in the EU since 2000. The country currently has as many unsold homes as the United States of America which is many times bigger than Spain. Loans to developers and construction companies stand at nearly $700billon, which is around half of its current GDP of $1.4trillion. With homes lying unsold developers are in no position to repay and this has put Spanish banks into trouble. Spain’s biggest three banks have assets worth $2.7trillion, which is two times Spain’s GDP. This is a problem that will not go away overnight.
What makes the situation more precarious is the fact that house prices are still falling. Experts feel that prices still need to fall by 35 percent from their current levels if they are to reach normality. This will mean more home loan defaults and more trouble for Spain in the days to come.
The reasoning for the rescue
The European Union and the European Central Bank have decided to come to the rescue of the Spanish banks and come up with what the media is calling a “bold” plan to pump money into its troubled banks. The logic for this rescue was the same as was in the earlier cases of bailout. If Spain is not rescued the crisis will spread to other countries. Not that rescuing countries with bailout plans helped in the past. Greece was the first country to be bailed out. Then came Ireland’s turn. And then Portugal. Now it is the turn of Portugal’s Iberian neigbour Spain. Who will be next?
To conclude
It is difficult to predict what exactly will happen in the days to come, but one thing that one can say with absolute confidence is that the European Central Bank and the euro zone will have to come up with more bailout plans. This will have the entire world markets including India on the tenterhooks. Every time a European country will get into trouble, the markets will fall. Money will go out from countries like India and will flow into the US dollar and American government bonds. This will lead to a depreciating rupee, which as we have seen in the past can have a huge negative impact on the Indian economy. But as the ECB and the euro zone will come to the rescue, markets around the world including in India, will rally again.
This cat and mouse game will continue for a while but will only postpone the inevitable. The fact that one day European countries won’t be able to repay their debt. As economist Bill Bonner wrote in a column “Let’s…put our hands together and welcome catastrophe. It’s coming…we like it or not. So why not like it?”
(The article originally appeared on www.firstpost.com on July 9,2012. http://www.firstpost.com/world/the-pain-in-spain-will-surely-bring-us-more-pain-too-371780.html)
(Vivek Kaul is a writer and can be reached at [email protected])

"In future, VCs will help launch new brands. Tata, Reliance had better watch out"


Companies are in a perpetual race to expand sales. And the easiest way to do that is to expand their well known successful brands into other categories. As marketing consultant and author of many bestsellers Al Ries puts it “If a brand is well known and respected, why can’t it be line extended into another category. That’s common sense. That’s why Xerox, a brand that dominated the copier market, introduced Xerox mainframe computers. A decision that cost the company billions of dollars. That’s why IBM, a brand that dominated the mainframe computer market, introduced IBM personal computers. In 23 years of marketing IBM personal computers, the company lost $15 billion and finally threw in the towel and sold the operation to Lenovo, a Chinese company.” Ries is the author of such marketing classics (with Jack Trout) as The 22 Immutable Laws of Marketing and Positioning: The Battle for Your Mind. In this interview to Vivek Kaul he speaks on various aspects of branding and marketing.
You have often said in the past that there is a a big difference between common sense and marketing sense. Could you discuss that in some detail with examples?
Common sense is another way of saying “logical.” Almost every rule of marketing is not logical, it’s illogical, which I defined as “marketing sense.” It takes years of study and personal experience to develop good marketing sense. Yet too many management people dismiss the ideas of their marketing managers because “marketing is nothing but common sense and who has better common sense than the chief executive?” Line extension is a typical example. If a brand is well known and respected, why can’t it be line extended into another category. That’s common sense. That’s why Xerox, a brand that dominated the copier market, introduced Xerox mainframe computers. A decision that cost the company billions of dollars. That’s why IBM, a brand that dominated the mainframe computer market, introduced IBM personal computers. In 23 years of marketing IBM personal computers, the company lost $15 billion and finally threw in the towel and sold the operation to Lenovo, a Chinese company. That’s why Kodak, a brand that dominated the film-photography market, introduced Kodak digital cameras. In spite of the fact that Kodak had invented the digital camera, the company was never successful in marketing the cameras under the Kodak name. And recently Kodak went bankrupt.
With all the experience you have had consulting companies all these years which area of marketing do you feel that marketers have the most trouble with?
We have had the most trouble working with large companies marketing big brands. And the issue is always line extension. Companies want to expand their sales so they figure the easiest way to do that is by expanding their brands into new categories. In other words, line extension. We have worked with Burger King, Intel, Xerox, IBM, Motorola, Procter & Gamble and dozens of other companies that invariably wanted to expand their brands whereas we almost always recommend the opposite strategy. Narrow the focus so your brand can stand for something. The second issue is timing. We have always recommended that companies try to be the first brand in a new category. But that is a difficult sell to top management. Their first question is usually, What is the size of the market? Of course, a new category is a market with zero revenues. And many, many management people never want to launch a product into any category that doesn’t already have a sizable market. We worked for Digital Equipment Corporation, a leader in the minicomputer market. We tried to get them to be the first to launch a personal computer for the business market. (IBM eventually was the first to do so, but without a new brand name which led to their failure.) In spite of days of meetings and presentations, the CEO of Digital Equipment refused to launch such a product. “I don’t want to be first,” he said, “I want IBM to be first and then I’ll beat their specs.” After IBM launched its personal computer, Digital Equipment followed, but never achieved more than a few percent market share. Eventually the company more or less fell apart and was bought by Compaq at a discount price.
How can a No. 2 brand compete successfully with a leader?.
What a No.2 brand should do is easy to explain, but difficult to execute. A No. 2 brand should be the opposite of the market leader. Why is this difficult to do? Because it’s illogical. Everyone assumes the No.1 brand must be doing the right thing because it’s the market leader. Therefore, we should do exactly the same thing, but better. That seldom works. Take Red Bull, the first energy drink and the global market leader. One reason for Red Bull’s success was the fact that it came in a small, 8.3-oz. can that symbolizes “energy,” like a stick of dynamite. So almost every competitive brand was introduced in 8.3-oz. cans and marketed as “better” than Red Bull. Except Monster, a brand introduced in 16-oz. cans in the American market. Today, Monster is a strong No.2 brand with a 35 percent market share compared to Red Bull’s 43 percent share. Also in the American market, BlackBerry was the leading smartphone until Apple introduced the iPhone. BlackBerry had a keyboard. Apple eliminated the keyboard and used a “touchscreen” instead. Mercedes-Benz was the leading luxury-vehicle brand until BMW came into the market. Mercedes vehicles were big and comfortable, so BMW became smaller and more nimble, as dramatized in the brand’s long-running advertising theme, “The ultimate driving machine.” As a matter of fact, BMW introduced the campaign with a two-page advertisement headlined: “The ultimate sitting machine vs. the ultimate driving machine.”
Do long running marketing campaigns help? How many companies have the patience to run a marketing program for two or three or four decades?
Next to line extension, that’s the biggest problem in marketing today. Companies don’t run marketing programs nearly long enough. The best example of a long-term successful campaign is the one for BMW. “The ultimate driving machine” strategy was launched in 1975 and the company still uses the same slogan today. That’s 37 straight years. Most marketing programs don’t last longer than three or four years. That’s way too short a time to make a lasting impression in consumers’ minds. I can’t recall any major marketing program, except for BMW, that has lasted more than a decade or so.
In a recent column you wrote that logic is the enemy of a successful brand name. What did you mean by that?
By “logic” I mean what you would use as a brand name if you did not study marketing and had no experience as a marketing person. In other words, common knowledge versus specialized knowledge. It’s like the Sun and the Earth. Common knowledge would suggest that the Sun revolves around the Earth and not the reverse. Look out your window and it’s obvious that the Sun is moving and the Earth is standing still. But specialized knowledge knows that isn’t true.
What is the connection with brand names?
As far as brand names are concerned, logic or common knowledge suggests that a generic name like Books.com would be a better choice than Amazon.com. If the prospect wants to buy a book, then logically the prospect would go to a website like Book.com or Books.com.
But a marketing-trained person knows that isn’t true. It’s not how a mind words. When a person hears the word “Book,” he or she doesn’t think it’s a website at all. It’s the generic name for a category of things. On the other hand, thanks to its marketing program, “Amazon” has become a specific name for a website devoted to selling books. So when a person thinks, “I want to buy a book on the Internet, he or she doesn’t think “Books.com,” he or she thinks “Amazon.com.” In almost every category, a specific “brand” name performs better than a generic “category” name. Google.com is a better name than Search.com. YouTube.com is a better name than Video.com. There is a caveat, however. In the absence of a marketing program that establishes a brand name in consumers’ minds, a generic name could do well.
Why do you say that as a general rule, any name that specifically defines a category is bound to be a loser?
Consider how a mind works. If I say “coffee,” you literally hear that word in your mind spelled with a lower-case “c.” It’s a common noun, or a generic word that stands for an entire category of things. The same reasoning hold true for a more specific name like “High-end coffee shop.” If I say “Starbucks,” on the other hand, you literally hear that word in your mind spelled with a capital “S.” It’s a proper noun, or a brand name that stands for a specific chain of high-end coffee shops. Oddly enough, you can use common English nouns in another country as brand names? Why is this so? Because consumers don’t know the meaning of these common words. So these words become proper nouns instead and usable as brand names. For example, a stroll down a street in Copenhagen turned up these store names: Biggie Best, Exit, Expert, Face, Flash, Joy, Limbo, Nice Girl, Redgreen, Sand and Steps. Nice brand names in Copenhagen perhaps. But they wouldn’t work in America.
What do you mean when you say that “the internet is exceptionally good at promoting web, not physical, brands.” Could you explain through examples?
First of all, consider the fact that the Internet has created a host of new, very-valuable Internet brands including Amazon, Google, Facebook, YouTube, Groupon, Pinterest, LinkedIn and dozens of others. How many new physical brand names were created on the Internet? I can’t think of any. The Internet is the newest, latest medium. It attracts people who are interested in what’s new and different on the Internet. So there is intense interest in any new website that promises a revolutionary way to handle some of your affairs. But there’s not the same level of interest in new physical brands. Like a new toothpaste, or a new camera, or a new breakfast cereal. That doesn’t mean that new physical brands can’t take advantage of the PR potential represented by the Internet. They certainly can, but it’s going to be more difficult for a physical brand to get a lot of attention on the Internet than an Internet brand.
You recently wrote that “If you don’t have the right strategy, good tactics won’t help you very much. And social, like all media, is a tactic. What concerns me is that too many marketers have elevated tactics — especially those of social media — to the level of strategy.” Could you elaborate on this statement?
Our leading marketing publication is called “Advertising Age.” I have suggested facetiously that the publication should be called “Social Media Age,” because a high percentage of the stories the publication writes about involve social media and marketing on the Internet. Strategy is seldom mentioned. One reason for the intense interest in the Internet is because many aspects are easily measured. A video on YouTube, for example, will be measured by: (1) The number of “Views.” (2) The number of “Likes.” (3) The number of “Dislikes.” And (4) The number and content of “Comments.” That’s a range of responses no other medium can deliver. No wonder marketing people devote endless hours to evaluating the success of Internet programs. But suppose a marketing program is not successful. Do you blame the strategy or the tactics? Today, it’s too easy to blame the tactics. My feeling, however, is that most of the time strategy is at fault.
Are there any ideas on branding which you have espoused in the past which you have now junked?
Yes, we used to think that brand names ought to communicate something tangible about the brand. Duracell is a good example. It suggests that the appliance battery is a “long-lasting” brand. But today, there are too many competitors in any given market. A tangible name like Duracell is likely to be surrounded by many other brands with similar names, confusing the consumer. A meaningless name is often a better choice. It allows you to develop your own unique meaning for the brand. Google is a good example. Initially it meant nothing, but today it means “search.”
What is your opinion on big brand names. India has a lot of them like Tata and Reliance. And they attach these names to every business or product they launch? How do you view that?
That’s line extension and it might work today in India, but would never work in America. In America, there are too many competitors in every category with distinctive brand names. A line-extended name like Tata and Reliance would be at a serious disadvantage here. Why does it work in India? I’m not an expert, but I believe that India suffers from a shortage of venture capital as compared to the United States. It’s hard for an entrepreneur to launch competitive brands to Tata and Reliance because it’s difficult to raise enough money for their introduction. But I believe that will change in future so both Tata and Reliance should be concerned about the future of their brands.
(Interviewer Kaul is a writer and can be reached at [email protected])

Why Sachin won’t go; he’ll just have to be pushed


Vivek Kaul

Every time an Indian team for one day internationals is announced, loud cries are made for Sachin Tendulkar to retire from this form of the game. Tendulkar being Tendulkar has to come out and clarify that he is in no hurry to retire and it is he who will decide when he wants to retire.
The logic behind Tendulkar retiring is simple. Unless he retires youngsters like Rohit Sharma and Manoj Tiwary can’t hope to play regularly for the Indian cricket team. Fair point.
The situation is a tad like it was with Kapil Dev in the early 1990s. Because he wouldn’t retire the likes of Javagal Srinath and Venkatesh Prasad had to wait longer before they became regular in the Indian cricket team. Srinath did not play his first test in India till he was 26. Prasad made his test debut in England at the age of 27.
Like Dev took his time to retire, even though he was way beyond his best, so will Tendulkar. And the answer for this is a little more complicated than is normally made out to be. Money and fame are the usual reasons offered for the inability of cricketers to retire when they are at their peak. Sunil Gavaskar retired from all forms of cricket when he was at his peak in 1988. But at that point of time the money in cricket wasn’t huge to keep a cricketer going just for the money. Gavaskar probably made more money from commentating over the years than he made from cricket.
But now things have changed. There is a lot of money to be made by playing cricket as well as being a brand ambassador for products. And companies will be interested in having a cricketer as their brand ambassador for their products as long as he is playing cricket. After a cricketer retires his potential to make money from advertisements does come down considerably.
Hence money is a genuine reason for a cricketer like Sachin Tendulkar looking to prolong his career, but there is more to it than just that.
Cricketers, especially the good ones, are performers who have honed their skills over the years. Also at some level they are obsessed with the game and have never really had a life beyond it. So it’s natural to expect them to continue as long as their body allows them to.
Imran Khan, who has asked Sachin to retire several times by now, played the game till the age of 40, leading Pakistan to a world cup victory. Geoff Boycott, Bobby Simpson and Lance Gibbs played cricket even in their forties, though modern cricket has rarely seen anyone playing after they have touched forty.
There are examples from other sports as well. Martina Navratilova played and won the mixed doubles titles at the Australian as well as Wimbledon at the age of 46 years and eight months, in 2003. This made her the oldest Grand Slam champion ever. Her partner in both the wins was Leander Paes.
Paes who is now nearing 40 is still very active on the doubles circuit. He told Times of India last year that Navratilova’s inspiring words “age is no barrier”, kept him going. Jimmy Connors, another tennis great, kept going till he was 40.
There are examples from other aspects of life where people who have been brilliant and successful at what they do, want to continue as long as possible. Take the case of former editor, writer and India’s most famous columnist Khushwant Singh. Every time he comes out with a new book he says this is his last one and then comes out with another one. Singh is 97 and still going strong with his writing. Another excellent example is that of R K Laxman who regularly drew cartoons for The Times of India till a couple of years back, even though he was in his late 80s.
Lata Mangeshkar lent her voice to heroines in their 20s even though she was well into her 70s. This despite the fact that she has sounded out of sync since the songs of Hum Aapke Hain Kaun came out in 1994. The same is true about her sister Asha Bhonsle.
These are people who are obsessed with what they do and hence expecting them to retire from doing the only thing they are good at, is not possible. Tendulkar is in the same category of people.
So where does that lead us to? Cricket Australia.
Cricket Australia is the Australian Cricket Board and is known to crack the whip when cricketers who it feels are beyond their best, do not want to retire. It has done that in the past to Steve Waugh and Matthew Hayden. Waugh, the greatest rescue act that test cricket has ever seen, was first dropped from the ODIs and then made to retire from tests as well. Recently Ricky Ponting was made to retire from ODIs, when the board felt that Ponting did not deserve a place in the team.
Given this, the ball is in the court of the Board of Control for Cricket in India. If they feel Sachin Tendulkar no longer deserves a place in the Indian ODI team then they have to either ask him to retire from the game or drop him. But then that’s easier said than done. Such is the greatness of the man it is impossible to expect any selection committee to drop him and risk facing the ire of crores of Sachin fans.
In the meanwhile the circus will continue. ODI teams will be announced. Calls will be made for Tendulkar to be dropped. And Tendulkar will come out and clarify that he is the best judge of when he should retire from the game.
But this is simply untrue. Tendulkar won’t go by himself; he will have to be pushed.
(The article originally appeared on www.firstpost.com on July 7,2012. http://www.firstpost.com/sports/why-sachin-wont-go-hell-just-have-to-be-pushed-370772.html)
(Vivek Kaul is a writer and can be reached at [email protected])

How the new Peter Principle caused Kingfisher’s downfall


Vivek Kaul
A few years back I had booked a ticket on an early morning Kingfisher flight from Mumbai to Ranchi, or so I had thought. I came to realize I was on Kingfisher Red and not the full service Kingfisher only once I was inside the aircraft.
Sometime later I came to realize that several people I knew had had a similar experience. They had booked flights thinking they were on the Kingfisher full service, only to realize later that they were on Kingfisher Red.
The airline clarified that it was not their mistake but the mistake of the websites that did not make a distinction between Kingfisher Red and Kingfisher First.
But the question that cropped up in my mind was that why would Kingfisher, a premium-upmarket brand, want to dilute its positioning by associating itself with Kingfisher Red, which was essentially a low-cost airline.
Vijay Mallya, started Kingfisher Airlines in 2005. A few years later he tried to get into the low cost airline business, which was the flavour of the season back then, by taking over Deccan Aviation which ran Air Deccan, a low cost airline. He rebranded it as Kingfisher Red. By doing this he diluted the premier positioning that Kingfisher Airlines had acquired in the minds of the consumer.
To explain this a little differently, let us take the example of Hindustan Unilever Ltd (HUL). It sells the Lifebuoy which is targeted at the lower end of the market and goes with the line tandurusti ki raksha karta hai Lifebuoy. The company also sells Lux which is targeted at the upper end of the market and comes with the tagline filmi sitaron ka saundarya sabun.
Of course, the positioning of Lifebuoy and Lux is totally different. And HUL tries to make this very very clear in the minds of the consumer. First of all, both the products have different names. Second the pricing is very different. And third, the advertisements of both the products emphasize on the “different” positioning over and over again.
Now Mallya running a low cost airline under the premium brand name of Kingfisher would be like HUL selling Lux soap under the name of Lifebuoy premium.
And it’s not just about the brand name and the positioning in the mind of the consumer. The philosophy required to run a premium brand is totally different in comparison to the philosophy required to run a low cost brand. Hence, Mallya buying Air Deccan was mistake. And then changing its name to Kingfisher Red was an even bigger mistake.
So in the end this did not work and Mallya decided to close down Kingfisher Red. He explained it by saying that “We are doing away with Kingfisher Red, we do not want to compete in the low-cost segment. We cannot continue to fly and make losses, but we have to be judicious to give choice to our customers.”
Kingfisher might have just survived if it had not made the mistake of buying Kingfisher Red. World-over several airlines have tried running a full-service and a low cost airline at the same time and made a mess of it. A company cannot run a low cost airline and a full service career at the same time. The basic philosophy required in running these two kind of careers is completely different from one another.
But the bigger question is what was Vijay Mallya trying to do by running a liquor business, a real estate business and an airline at the same time? This was other than spending substantial time on his expensive hobbies of trying to run a cricket and an FI team, and cheaper ones like commenting regularly on Twitter.
There isn’t really any link among the businesses Mallya runs. Some people have tried to explain that the airline was just surrogate advertising for the beer of the same name. But then there are cheaper ways of advertising than running an airline and losing thousands of crores doing it.
Businesses over the years have become more complicated. And just because a company has been good at one particular business doesn’t mean it will be good at another totally unrelated business.
Mallya is not the only one realizing this basic fact. The period between 2002 and 2008 was an era of easy money. Businesses could borrow money very easily to expand as well as get into new business. And this is what finally got businessmen like Mallya into trouble.
The British economist John Kay calls this the new Peter’s Principle. The original Peter’s Principle essentially states that every person rises to his or her level of incompetence in a hierarchy. Simply put, as a person keeps getting promoted he is bound to appointed to a job, he is not good at. The same is the case with companies which keep buying and diversifying into different businesses, until they land up in a business they don’t really understand. And that drives them down.
Mallya was a victim of the new Peter’s Principle, his non related diversification into the airline business cost him dearly. The lack of focus has hurt Mallya’s core alcohol business as well and United Spirits is no longer India’s most profitable alcohol company. That tag now belongs to the Indian division of the French giant Pernod Ricard.
An era of easy money got Indian entrepreneurs including Mallya to get into all kinds of things which they did not understand and had no clue about. Kishore Biyani brought the retail revolution to India, having been inspired by Sam Walton who started Wal-Mart. His retail businesses were doing decently well till he decided to get into a wide variety of businesses from launching an insurance company to even selling mobile phone connections. When times were good he accumulated a lot of debt in trying to grow fast. Now he is in trouble in trying to service the debt and rumors are flying thick and fast that he is planning to sell Big Bazaar, his equivalent of Wal-Mart. This after he sold controlling stake in the cloths retailer, Pantaloons.
Let’s take the case of DLF, the biggest real estate company in the country. It tried getting into the insurance and mutual fund business. It had to sell its stake in the mutual fund business and if news reports are to be believed it is trying to lower its stake in the insurance venture. It also tried unsuccessfully to get into the luxury hotel business and failed. Hotel Leela tried to get into the up-market apartments space and failed.
Reliance Energy (the erstwhile BSES) was turned into Reliance Infra and now is into all kinds of things. It is building one section of the Mumbai Metro, the completion of which keeps getting postponed. It is also supposed to build the remaining portion of the sealink in Mumbai.
The days when businesses like Tata and Birla used to do everything under the sun are long over. In fact, those were the days of license quota raj with very little competition. Hence companies could get into a new space as long as they got a license for it.
An interesting example is that of the Ambassador. The car had the same engine as of the original Morris Oxford which was made in 1944. The same engine was a part of the Ambassador car sold in India till 1982. The technology did not change for nearly four decades.
Given this lack of change, the businessmen could focus on multiple businesses at the same time. That is not possible anymore with technology and consumer needs and wants changing at a very fast pace. Even focused companies like Nokia missed out on the smart phone revolution in India.
Look at the newer businesses some of the big-older companies have got into over the years. The retail business of Ambanis hasn’t gone anywhere. Same is true with that of the retail business of the Aditya Birla group. The telecom business of the Tatas has lost a lot of money over the years. Though, they finally seem to be getting it right.
Hence it’s becoming more and more essential for businesses to focus on what they know best. And when it comes to airlines its time Mallya read what Warren Buffett told his shareholders a few years back.
Now let’s move to the gruesome. The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down. The airline industry’s demand for capital ever since that first flight has been insatiable. Investors have poured money into a bottomless pit, attracted by growth when they should have been repelled by it. And I, to my shame, participated in this foolishness when I had Berkshire buy U.S. Air preferred stock in 1989. As the ink was drying on our check, the company went into a tailspin, and before long our preferred dividend was no longer being paid. But we then got very lucky. In one of the recurrent, but always misguided, bursts of optimism for airlines, we were actually able to sell our shares in 1998 for a hefty gain. In the decade following our sale, the company went bankrupt.
The bigger sucker saved Buffett. But Mallya may not have any such luck
(The article originally appeared on www.firstpost.com on July 5,2012. http://www.firstpost.com/business/how-the-new-peter-principle-caused-kingfishers-downfall-368549.html)
(Vivek Kaul is a writer and can be reached at [email protected])

Babalog prophecy: Why Akhilesh won’t ever transcend Mulayam


Vivek Kaul

Scandinavian crime writers have been fairly popular over the last few years. The likes of Henning Mankell and Stieg Larsson have taken the world by storm. The latest Scandinavian sensation is Jo Nesbo, who has been writing a series of novels featuring a very “disturbed” Oslo police detective, Inspector Harry Hole.
Hole has a drinking problem. He has done drugs at various points of time. And the love of his life has left him and disappeared after she gets embroiled in one of the cases that Hole is investigating. On top of this Hole shares a rather philosophical relationship with his father who is dying of cancer. Nesbo writes the following paragraph in the context of the relationship that Hole shares with his father in a novel titled The Leopard:
There were those who asserted that sons always became, to some degree or other, disguised variants of their fathers, that the experience of breaking out was never more than an illusion; you returned; the gravity of blood was not only stronger than your willpower, it was your willpower.

Nowhere is this truer than in the context of the Indian political scenario, when the sons and daughters take over the mantel of their politician parents. India is full of political scions who have taken over, or are taking over, or will take over from where their parents left or are likely to leave.
Let me try and make a random list of politicians who fulfill this criterion, starting from Jammu Kashmir in the north and working my way down south to Tamil Nadu.
Omar Abdullah, the current chief minister of Jammu and Kashmir is the son of Dr Farooq Abdullah and grandson of Sheikh Abdullah, both career politicians.
Himachal Pradesh is ruled by Prem Kumar Dhumal whose son Anurag Thakur is a member of the Lok Sabha from Hamirpur and also a joint-secretary of the Board of Control for Cricket in India(BCCI).
The chief minister of Punjab is Prakash Singh Badal. His son Sukhbir Singh Badal is the deputy chief minister and the president of the Shiromani Akali Dal.
Sheila Dikshit is the chief minister of Delhi. Her son Sandeep Dikshiit is the member of Lok Sabha from the East Delhi constituency.
Orissa or Odisha as it is now known as is ruled by Naveen Patnaik son of the late Biju Patnaik.
Andhra Pradesh has scions of NT Rama Rao battling for political space. Jaganmohan Reddy the son of the late Y Rajshekar Reddy is giving the ruling Congress party a tough time.
Tamil Nadu has the Karunanidhi, his sons, his nephews, his grandsons, and so on, all hoping to stay relevant in a space which is getting a little too crowded for Karunanidhis.
Karnatka has BS Yeddyurappa the enfant terrible of the BJP. His son B. Y. Raghavendra is a member of the Lok Sabha from Shimoga. The state also has the Deve Gowda clan.
Maharasthra has too many political clans for me to start listing them here (that probably needs a separate piece in itself). But the latest political scion to join the bandwagon is Aditya Thackeray, son of Uddhav Thackeray and the grandson of Bal Thackeray.
This is a random list and is not complete in anyway. But it list remains incomplete without Akhilesh Yadav, the son of Mulayam Singh Yadav, and the current chief minister of Uttar Pradesh.
The phenomenon of political scions is not limited only to the states.
Patrick French in his book India: A Portrait carried out a very interesting piece of analysis on the Indian members of Parliament. Every Indian MP under the age of 30 was a hereditary MP i.e. his or her family member had made a career out of politics. More than two-thirds of the MPs under the age of 40 are hereditary.
Twenty seven MPs were what French calls “hyper-hereditary” i.e. they had several family members who made a career out of politics. The Congress party leads the race here. All the MPs that the party has under the age of 35 are hereditary. 88% of the Congress MPs under the age of 40 are hereditary. Regional parties have a greater proportion of hereditary MPs, in comparison to the national parties.
So what does this tell us? It tells us that the Indian voter loves to elect political scions into positions of power. It tells us why Motilal Nehru’s great great grandson is leading the race to become the next Prime Minister of India. It tells us why Akhilesh Yadav, the son of Mulayam Singh Yadav, was elected the chief minister of Uttar Pradesh.
But that’s just one part of it. It also tells us that politicians like businessmen want their sons and daughters to take over from them. A businessman after having built a good business which throws up a lot of money wants his progeny to manage it. The same seems to be the case with the politicians. Having built a good business model over the years they want their sons and daughters to run it.
This leads to a situation widely prevalent in the Hindi film industry where it’s difficult for an outsider to make it big as a hero. Most of the current crop of heroes are descendants of people who have had something to do with the Hindi film industry. These “heroes” are jocularly referred to as “baba log”.
But it is difficult to separate cause from effect. The Indian voter likes electing political scions and that is why we see more and more baba log entering politics. But at the same time since baba log have cornered most of the space in Indian politics, who else does the voter vote for?
It is a chicken an egg question.
Nevertheless, expecting baba log to change things that their parents or uncles or aunts or grandfathers weren’t able to do, is expecting a little too much from them. The case in point is Akhilesh Yadav. He ran the “umeed ki cycle” campaign during the elections in Uttar Paresh. The campaign was produced by former Hindi film director Arjun Sablok, who directed flops like Neal n Nikki and Na Tum Jaano Na Hum.
The voter was taken for a ride thinking that all that had been wrong during the rule of Mayawati, and also during the rule of Mulayam Singh Yadav, would change in the days to come. That was not to be.
The question that one needs to ask here is why political scions enter politics. That should provide us an answer to why it’s best not to expect any sort of change from baba logs. A political scion enters politics to carry on the family tradition of being in politics. He also understands that at some level he will not have to struggle to make it on his own. Things will be handed out to him on a platter. In short he is taking the easy way out, in most cases. And anyone who takes the easy way out to make himself relevant in this world has his own interests on the top of the agenda and not of the voters who elected him in the first place. The top interest of a political scion is furthering the cause of the family and the people who support the family.
Hence Akhilesh Yadav is in the process of becoming what his father was and probably still is. To end, let me quote Jo Nesbo again:
There were those who asserted that sons always became, to some degree or other, disguised variants of their fathers, that the experience of breaking out was never more than an illusion; you returned; the gravity of blood was not only stronger than your willpower, it was your willpower
The bigger sucker saved Buffett. But Mallya may not have any such luck
(The article originally appeared on www.firstpost.com on July 5,2012. http://www.firstpost.com/politics/babalog-prophecy-why-akhilesh-wont-ever-transcend-mulayam-368232.htmll)
(Vivek Kaul is a writer and can be reached at [email protected])