“Sixkku appuram seven da, Sivajikku appuram yevenda,” says Superstar Rajinikanth in the tremendously entertaining Sivaji – The Boss. The line basically means that “after six there is seven, after Sivaji there is no one.”
Like there is no one after Sivaji (or should we say the one and only Rajinikanth) similarly there is no one in the Congress party beyond the Gandhi family. And the party can go to any extent to keep the family going and at the centre of it all.
Take the recent decision of the Congress led United Progressive Alliance (UPA) government to implement the direct cash transfers scheme in a hurry. On the face of it one cannot really question the good logic behind the scheme. The idea is to make cash transfers directly into the accounts of the citizens of this country instead of offering them subsidies, as has been the case until now. This transfer will happen through Aadhar unique ID card enabled banks accounts.
As The Hindu reports quoting the finance minister P Chidambaram “Initially, 29 welfare programmes — largely related to scholarships and pensions for the old, disabled — operated by different ministries will be transferred through Aadhaar-enabled bank accounts in 51 districts spread over 16 States from January 1, and by the end of the next year it should cover the entire country, Mr. Chidambaram said. He added that only at a later stage would the government consider the feasibility of cash instead of food (under the Public Distribution System) and fertilizers, since it was more complicated.”
So far so good.
But the question is why is the government in such a hurry to implement the scheme? The scheme is to be implemented in 51 districts January 1, 2013 and eighteen states by April 1, 2013, the start of the next financial year. The government hopes to implement the scheme in the entire country by the end of 2013 or early 2014.
A scheme of such high ambition first needs to be properly tested and only then fully implemented. As has been explained in this earlier piece on this website there have been issues with the government’s other cash transfer programme, the National Rural Employment Guarantee Scheme (NREGS).
There have also been issues with pilot projects that have been carried on the cash transfers scheme till now. In one particular case people who got the subsidy had to spend a greater amount of money than the subsidy they received, in getting to the bank and collecting their subsidy.
The other big issue that might come up here is the opening of bank accounts. While the Aadhar Card does identify every person uniquely, India remains a terribly under-banked country. And that is something that needs to be set right in a very short period of time, if the direct cash transfers system needs to get anywhere.
The big selling point of the direct cash transfers scheme is that leakages which happen from the current system of subsidies will be eliminated. For example, currently a lot of kerosene sold through the subsidised route does not reach the end user and is sold in the open market where it is also used to adulterate petrol and diesel, among other things. Some of this kerosene also gets smuggled into the neighbouring countries where kerosene is not as cheap as it is in India and hence there is money to be made by buying kerosene cheaply in India and selling it at a higher price there.
Now people will buy kerosene at its market price and the subsidy will come directly into their bank accounts. So the subsidy will reach the people it is supposed to reach and will not enrich those people who run the current system.
While this sounds very good on paper, the reality might turn out to be completely different as an earlier piece on this website explains and the so called leakages might continue to take place.
Hence, its very important to run pilot tests in various parts of the country, solicit feedback, implement the necessary changes and then gradually go for a full fledged launch. A system of such gigantic proportion cannot be built overnight as the government is trying to.
So that brings us back to the question why is the government in such a hurry to implement direct cash transfers scheme? And in a way screw up what is inherently a good idea.
The answer probably lies in what Jairam Ramesh, the Union Rural Development Minister told The Hindu ““The Congress is a political party, not an NGO. We had promised cash transfer of benefits and subsidies in our election manifesto of 2009,” Mr. Ramesh said, asking “Where is the talk of elections?””
But as the great line from the great political satire Yes Minister produced by the BBC goes “The first rule of politics: never believe anything until it’s been officially denied.” So this hurry to get the scheme going is nothing but the Congress party getting ready for the 2014 Lok Sabha polls.
As an article in the India Today magazine points out “The government’s calculation is that just as the National Rural Guarantee Act and the farmer loan waiver had sealed its victory the 2009 Lok Sabha elections, the direct cash transfer of subsidies would do the same in the 2014.”
Or as Ramesh put it more aptly by getting into the poll mode “aapka paisa, aapke haath“. And this is being done to ensure that the Congress party does well in the next Lok Sabha elections and Rahul Gandhi becomes the prime minister of India.
There are several interesting points that arise here. The first point is that the launch of the cash transfers system will give the Congress politicians battling a string of corruption charges something new to talk about. And that is important.
Indira Gandhi established by winning the 1971 Lok Sabha with her Garibi Hatao slogan that it is important to talk about the right things in the run up to the elections irrespective of the fact whether anything concrete about it is done or not, in the days to come.
There is no one more cunning as a political strategist this country has had than Mrs Gandhi. And every Congressman worth his salt knows that. It is more important to make the right noises than come up with results.
The second point that comes out here is that the government is making all the right noises about this scheme being fiscally neutral. This means that the expenditure on
subsidies won’t go up. Only the current subsidies on offer will now be distributed through this route. This is something that I am unwilling to buy.
I wouldn’t be surprised if the right to food act is set in place in the days to come before the 2014 Lok Sabha elections. The excuse will be that now that we have a direct cash transfer set up in place we are well placed to launch the right to food act as there will be no leakages.
While the idea behind subsidies is a noble one, the government of India is not in a position to foot the mounting bills. The fiscal deficit for the year 2012-2013 has been targeted at Rs 5,13,590 crore or 5.1% of the gross domestic product. Fiscal deficit is the difference between what the government earns and what it spends.
As the Kelkar committee on fiscal consolidation recently pointed out “A careful analysis of the trends in the current year, 2012-13, suggests a likely fiscal deficit of around 6.1 percent which is far higher than the budget estimate of 5.1 percent of GDP, if immediate mid-year corrective actions are not taken.” The committee estimated if the government continued to function as it currently is it will end up with a fiscal deficit of Rs 6,15,717 crore. And I believe that the Kelkar committee’s estimates are fairly conservative. So we might very end up with a higher fiscal deficit if the direct cash transfers system is used to launch more subsidy programmes as I guess would be the case.
And that brings me to my third point. As the India Today magazine points out “The cash transfer of subsidies estimated to be worth Rs 3,20,000 crore will not be an easy task. Procedurally, one of the major obstacles would be the fact that many of the beneficiaries might not even have bank accounts. But more significantly, the scheme does nothing to address the main problem – bring down the subsidies to ease the pressure on the exchequer.”
High subsidies basically imply greater borrowing by the government. This in turn means lesser amount of money being available for others to borrow and hence higher interest rates. Higher subsidy also means more money in the hands of Indian citizens. This more money will chase the same number of goods and services and hence lead to higher inflation. Also be prepared for a higher food inflation in the years to come.
Higher interest rates will mean that the lower economic growth will continue in the time to come despite of what the politicians and the bureaucrats would like us to believe. Consumers will take on lesser debt to buy homes, cars and consumer goods. This will be bad for business, and in turn they will go slow on their expansion plans and thus impact economic growth further.
As Ruchir Sharma writes in his bestselling book Breakout Nations. “It was easy enough for India to increase spending in the midst of a global boom, but the spending has continued to rise in the post-crisis period…If the government continues down this path India, may meet the same fate as Brazil in the late 1970s, when excessive government spending set off hyperinflation and crowded out private investment, ending the country’s economic boom.”
And that’s the cost this country will have to take on a for one party’s love for a family. To conclude, let me quote something that Ramchandra Guha writes in the essay Verdicts on Nehru which is a part of his latest book Patriots and Partisans “Mrs (Indira) Gandhi converted the Indian National Congress into a family business. She first brought in her son Sanjay, and after his death, his brother Rajiv. In each case, it was made clear that the son would succeed Mrs Gandhi as head of Congress and head of government.”
The sudden hurry to implement the direct cash transfers system probably tells us that this generation’s Mrs Gandhi has also made it clear to Congressmen that her son is ready to take over the reins of this country.
Hence, the Congress government is now working towards making that possible. In the process India might get into huge trouble. But we will still have Rahul Gandhi as the Prime Minister.
And that is more important for Congressmen right now than anything else.
The article was originally published on www.firstpost.com on November 29,2012.
(Vivek Kaul is a writer. He can be reached at [email protected])
Month: November 2012
Luck vs Pluck: The man who could have been Bill Gates
When I was a senior in college, I didn’t really know what I wanted to do with my career, but I knew I needed a job. Drexel Burnham Lambert, an investment bank that was very successful at the time, came on campus to interview and I did well enough to be invited to New York City for a final round. So I put on my best suit and made the trip.
The day of the interviews, we candidates were told that we would have six long interviews and just 10 minutes with the executive who ran the division. My interviews went fine, and then it was my turn to meet with the executive. Upon walking into his office, I noticed that he had a trash can that carried the emblem of the Washington Redskins, a professional American football team. Being a sports fan and having spent my last four years in Washington, D.C., I complimented him on the trash can. That comment hit in an emotional spot, and he launched into a discussion of his time in D.C., the virtues of sports, and the link between athletics and business. I sat and nodded, as 10 minutes stretched to 15.
You got the job?
I got the job, and accepted it. Indeed, my time at Drexel Burnham was extremely formative. After about six months into the program, one of the leaders pulled me aside. “You’re doing fine in the programme,” he started, “but I have to tell you something. The six interviewers voted against hiring you. But the top guy came down and insisted that we bring you in. I don’t know what you said, but it sure worked.” So I like to say that my career was launched by a trash can, and that was pure luck.
What was the broader point that you were trying to make through that example?
The broader point is that luck permeates many aspects of our lives and we’re frequently unaware of its role. So this book is about skill and luck, and includes the definition of each term, tools and methods to quantify the role of each, and what to do about it.
“Most of the successes and failures we see are a combination of skill and luck that can prove maddeningly difficult to tease apart,” you write. Can you explain that in detail?
I open a chapter with the story of an entrepreneur who was born near Seattle who was a brilliant programmer and wrote code that effectively launched the personal computer revolution. He started a company that by 1980 had a dominant market share in the software that ran on the Intel chip. But the company’s fate was sealed in 1981 when IBM came calling and sealed a deal. Now if you know a little about Bill Gates, you can see how that series of facts fits him pretty well. But then I share the end of the story: this tech pioneer walked into a bar in California in 1994 and hit his head bluntly as a result of a fight or a fall—the details were never clear. He died three days later. His name was Gary Kildall, and he has a floppy disk etched on his tombstone. Chances are you’ve never heard of Gary Kildall but you have heard of Bill Gates.
That’s very interesting…
When IBM executives first approached Microsoft about supplying an operating system for company’s new PC, Gates actually referred them to Digital Research (Kildall’s company). There are conflicting accounts of what happened at the meeting, but it’s fairly clear that Kildall didn’t see the significance of the IBM deal in the way that Gates did.
And what happened then?
IBM struck a deal with Gates for a lookalike of Kildall’s product, CP/M-86, that Gates had acquired. Once it was tweaked for the IBM PC, Microsoft renamed it PC-DOS and shipped it. After some wrangling by Kildall, IBM did agree to ship CP/M-86 as an alternative operating system. IBM also set the prices for products. No operating system was included with the IBM PC, and everyone who bought a PC had to purchase an operating system. PC-DOS cost $40. CP/M-86 cost $240. Guess which won. But IBM wasn’t the direct source of Microsoft’s fortune. Gates did cut a deal with IBM. But he also kept the right to licence PC-DOS to other companies. When the market for IBM PC clones took off, Microsoft rocketed away from competition.
So what is the point?
The fact is, Kildall played his cards much differently than Gates did, and hence did well but enjoyed financial success vastly more modest than Gates. But it’s tantalizing to consider the possibility that with a few tweaks, Kildall could have been Gates.Now the book acknowledges that untangling skill and luck can be imperfect, but even some sense of the relative contributions of the two can really help you understand history and, more importantly, make better predictions of the future.
(Vivek Kaul is a writer. He can be reached at [email protected])
How Cong ‘chamchagiri’ made Sonia India’s No 1 politician
The closest English word for the desi word chamchagiri is sycophancy. But sycophancy doesn’t have the same depth as chamchagiri does. Sycophancy doesn’t make my tongue twirl in the same way as chamchagiri.
So let me take this opportunity to explain chamchagiri in some more detail through a song from the late Jaspal Bhatti’s superhit television serial Flop Show. For those who don’t know or don’t remember, each episode of the serial highlighted corruption from a different facet of life.
One particular episode dealt with the travails of a PhD candidate and his attempts to get a PhD. The PhD candidate (played brilliantly by Vivek Shaque who died a few years back in a plastic surgery gone wrong) carriers out various household chores including buying vegetables for his guide (played by Bhatti) in the hope of getting his PhD.
Towards the end of every episode Flop Show had a parody of a hit Hindi film song. This particular episode had a spoof of the song jo tumko ho pasand wohi baat kahenge, tum din ko agar raat kaho raat kahenge.
The lines of the parody were different and went like this:
Jo tumko ho pasand wohi baat kahenge,
beaker ko agar jar kaho to jar kahenge.
(You can listen to the complete parody here)
This is the level of commitment required of a chamcha, something that the word sycophant simply does not convey.
Now before you start to wonder, dear reader, as to why have I gone into so much detail in trying to define or rather differentiate between chamchas and sycophants, allow me to explain.
It shouldn’t come as a surprise to you if I tell you that most Indian political parties are full of leaders who are essentially chamchas who have risen to the top or full of leaders who have become chamchas after being brought in at the top.
Some of the cadre based parties like the Left Parties and Bhartiya Janta Party (to some extent) are exceptions to this.
But India’s number one party when it comes to chamchas is the Congress. Most recently the chamchagiri was in full show when top leaders of the party like P Chidambaram, Veerapa Moily, Jayanthy Natarajan, Kapil Sibal, Manish Tewari and Rashid Alvi (all lawyers to boot) spoke out to vociferously defend the shenanigans of Robert Vadra, son-in-law of Sonia Gandhi, their supreme leader.
But Congress was not always a party of chamchas and chamchagiri. At least not till 1969. Historian and writer Ramachandra Guha explains this in an essay titled A Short History of Congress Chamchagiri which is a part of his recently released book Patriots and Partisans.
“Most Indians are too young to know this, but the truth is that until about 1969 the Congress was more or less a democratic party,” writes Guha.
Sometime before Jawahar Lal Nehru died, Indira Gandhi had been planning to settle in Great Britain. After Nehru died in May 1964, she was invited to join the cabinet as the minister of information and broadcasting by Lal Bahadur Shastri who took over as the next prime minister.
“When Shastri died in January 1966, Mrs Gandhi was, to her own surprise, catapulted into the post of the prime minister. There were other and better candidates for the job, but the Congress bosses (notably K Kamraj) thought that they could more easily control a lady they thought to be a gungi gudiya (dumb doll),” writes Guha.
But instead of being a gungi gudia she turned out to be a control freak who split the party in 1969 and what was a essentially a decentralised and democratic party till that point of time became an extension of the whims, fancies and insecurities of a single individual.
Thus started an era of chamchas and chamchagiri in the Congress. Dev Kant Baruah who was the President of the Congress Party between 1975 and 1977 went to the extent of saying “Indira is India and India is Indira“. What was loyalty to the party earlier became loyalty to the individual and the family.
Also Indira Gandhi had total control over the system effectively overriding democracy and imposing emergency on June 26, 1975.
A famous cartoon made by Abu showed President Fakhruddin Ali Ahmed in his bath during the emergency signing ordinances and saying “if there are any more ordinances just ask them to wait.” Other than this, Indira Gandhi also took to firing both chief ministers and governments at will.
While she was building her own career, Mrs Gandhi’s two sons Sanjay and Rajiv were trying out their own careers as well. As Guha writes “The elder boy, Rajiv, after having followed his mother in having failed to complete a degree, took a pilot’s license and joined Indian Airlines. The younger boy, Sanjay, prudently chose not to go to university at all. He apprenticed at Rolls Royce(in Great Britain), where his lack of discipline provoked a flood of anguished correspondence between his mother and the Indian high commission.”
Sanjay Gandhi came back to India with the idea of manufacturing what he called the people’s car. “Despite the gift of cheap land (from a sycophantic chief minister of Haryana) and soft loans from public sector banks, the project failed to deliver on its promises. Another of Sanjay’s chamchas Khushwant Singh, then the editor of the Illustrated Weekly of India, claimed that his factory would roll out 50,000 cars a year,” writes Guha. But nothing of that sort happened.
Sanjay Gandhi got out of cars and gradually got into politics effectively becoming number two to his mother Indira. Rajiv Gandhi on the other hand wasn’t interested in politics. “His greatest professional ambition was to graduate from flying Avros on the Delhi-Lucknow run to flying Boeings between Calcutta and Bombay. By June 1980 he had been flying for twelve years, but his record did not yet merit the promotion he so ardently desired,” Guha points out.
In June 1980 Sanjay Gandhi died in an plane crash and Rajiv had to enter politics to support his mother. And in politics he was luckier than he was as a pilot. As Guha writes “He was rather luckier in politics. Once he had answered Mummy’s call, and changed his career, the rewards were swift. Within five years of joining the Congress he had become prime minister of India.”
And the Congress party had effectively become a family run concern. As Guha writes in the essay Verdicts on Nehru “Mrs Gandhi converted the Indian National Congress into a family business. She first bought in her son Sanjay, and after his death, his brother Rajiv. In each case, it was made clear that the son would succeed Mrs Gandhi as head of Congress and head of government.”
Once Indira Gandhi had placed her family at the helm of the Congress it was time for other parties across the country to follow suit. “Indira Gandhi’s embrace of the dynastic principle for the Congress served as a ready model for other parties to emulate…The DMK was once the proud party of Dravidian nationalism and social reform; it is now the private property of M Karunanidhi and his children…Likewise, for all his professed commitment to Maharashtrian pride and Hindu nationalism Shiv Sena leader, Bal Thackeray could look no further than his son. The Samajwadi Party and Rashtriya Janta Dal claimed to stand for ‘social justice’, but the leadership of Mulayam’s party passed onto his son and in Lalu’s party to his wife,” writes Guha.
There are other examples as well. Sharad Pawar is grooming his daughter to take over the reins of his party. Dr Farooq Abdullah passed on the leadership of his family party the National Conference to his son Omar. And this is deeply inimical to the practise of democracy in India, feels Guha.
He gives the example of once travelling through Tamil Nadu a few years back. “I was met at every turn by ever-larger cut-outs of the chief minister’s son and heir apparent – cut-outs of MK Stalin smiling, Stalin writing, Staling speaking into a cell phone. The only other place where I have felt so stifled by a single face was in Syria of Bashar Assad.”
And all this has happened because Lal Bahadur Shashtri died rather suddenly and Indira Gandhi was catapulted into a position of immense power. So the question is what would have happened if the Shastri had lived for another five years?
“Had Shastri lived, Indira Gandhi may or may not have migrated to London. But even had she stayed in India, it is highly unlikely that she would have become prime minister. And it is certain that her son would have never have occupied or aspired to that office…Sanjay Gandhi and Rajiv Gandhi would almost certainly still be alive, and in private life. The former would be a (failed) entrepreneur, the latter a recently retired airline pilot with a passion for photography. Finally, had Shastri lived longer, Sonia Gandhi would still be a devoted and loving housewife, and Rahul Gandhi perhaps a middle-level manager in a private sector company,” writes Guha.
In short, the world that we live in would have been a very different and probably a better place. But as the great Mirza Ghalib, who had a couplet for almost every situation in life, once said “hui muddat ke ghalib mar gaya par yaad aata hai wo har ek baat par kehna ke yun hota to kya hota?”
The article originally appeared on www.firstpost.com on November 27,2012.
(Vivek Kaul is a writer. He can be reached at [email protected])
“Swami Vivekananda was a rockstar before they had a term like that”
Rohit Deshpandé is the Sebastian S. Kresge Professor of Marketing at Harvard Business School where he currently teaches in the Owner/President Management Program and in other executive education offerings. He has also taught global branding, international marketing, and first year marketing in the MBA program. In this interview to Vivek Kaul he talks about the provenance paradox, as to how companies from emerging markets find it very difficult to establish their brands globally, even though they have both the human as well capital resources required for such an effort.
What is provenance paradox?
I have been interested in looking at the marketing problems of companies from emerging nations. The background is my previous work profiling the most successful companies in the world and doing that I found that these successful companies came from the developed world. So they came from the United States, they came from Europe and Japan and so on. The next phase was to identify who the next great multinationals are going to be. And my intuition was that they are not going to come from the developed world but they are going to come from the developing world given that they are hungrier, they are more innovative, and many of them have huge domestic markets, which is how these other companies from the developed world that I studied got started. They had access to big domestic markets.
What happened next?
When I started doing that work the marketing challenge that I found was a branding one. These companies from emerging markets wanted to build global brands and for some reason had difficulty doing it. So if you look at any ranking of the top 50 or the top 25 global brands, the BRIC nations (Brazil, Russia, India and China) are conspicuously absent, which is surprising because countries like Brazil, China and India, and to some extent Russia, have significant resources they can expend. This includes human resources as well capital resources. So it doesn’t seem to be a question of money.
Expend on building a brand you mean?
Yes. Expend on building the brand. That’s the barrier. It is not a question of ambition. It was a paradox and I couldn’t understand it. These are aspiratonal, ambitious, well resourced companies that don’t seem to be able to build global brands. Or at least not yet. One hypothesis when I was initially presenting this work was that people said that it takes a long time to build a global brand and that’s why. And it turns out that if you look at the top brands there are some that have come up in the last five years. On the technology side Facebook is a company that has built a global brand fairly recently. Google, has build a global brand in quick time.
Even a company like Apple which was down in the dumps…
Has risen to the top, number two, number three rank now. Excellent example. So it’s not a question of time. There is something else going on. The other thing that I noticed was that there is like a small area around Milan in Italy that has a bunch of them and they all happen to be in fashion, Armani, Versace and so on. And so I came to the provenance paradox. Why is it that when you say Made in Brazil or Made in India or Made in China people somehow discount? Is this soft racism? And that is one possibility. The fact that something is coming from China or from India, makes people say that it is just not good enough.
Even in India we don’t look up upon something that says Made in China…
The funny thing is that even in China they don’t look up to Made in China. You want to hear a story?
I was talking to the person who runs the Asian operations for Prada. She was telling me that they are running short of artisans in Italy who can work with leather, silk and so on, to make purses. They have lost a generation of young people in Italy who have gone to work in factories. She said that the place that we find them is in China. They have retained these skills and they are cheap. The problem is she said that if it is a Prada bag or Prada shoes, that says Made in China, not only will they not buy it in Europe, the women don’t buy them in China as well. So extremely affluent women in China will not buy Made in China. So yes this provenance paradox is a real problem and it’s a problem within the countries itself.
Can you give us some examples of the provenance paradox?
One of the first ones I encountered was Café Columbia, which is a social enterprise of the federation of national coffee growers in Columbia. The coffee growers have small plot of lands. So they formed a federation to help them market the product because they did not have the resources to market the product. These guys realised very quickly that they have a problem because they wanted to export and Columbia is seen as the exporter of the other “cash” crop. So in a country like the US which is the largest coffee consuming market in the world they couldn’t get any real penetration.
What did they do?
They hired an advertising agency on the Madison Avenue to create an advertising campaign around this fictitious coffee grower from Columbia called Juan Valdez who took great care of the coffee beans and picked up the best ones as he wandered through the hills. People developed a tremendous affection to this character and which passed onto the brand. They build something called 100% Columbian Coffee which is the brand. They had the country of origin in the name of the brand. And it’s an ingredient brand, meaning, that they don’t sell to retailers directly. They sold it to Nestle, who would put it into their Nescafe brand of coffee and said Nescafe 100% Columbian.
Any other example?
Let me give you another example that is very different. Corona beer. Does Corona sell here?
The advertising for Corona doesn’t mention the country of origin, which is Mexico, at all. In fact what they do is they play off this whole lifestyle theme of vacation on the beach. The creative strategy for their advertising is sun, fun, beach, and vacation in a bottle. They have been extremely successful with it. People project themselves into those ads. The beach doesn’t have to be in Cancun (a seaside city with beaches, situated in Mexico). It could be in Riviera. It could be in Kerala. It could be anywhere in the world. But they built a successful brand by not saying anything about the provenance (i.e. the country of origin) and it is intentional. That’s what they wanted to do. They did not want to be clubbed with other Mexican beers which tend to be cheap. These guys price premium and they price the same level as Heineken in the US. And Heineken had been the number one imported beer brand in the US for fifty years since prohibition. They overtook them.
Any other example?
The third one is a case study that I have just finished and which I am teaching for the first time here tomorrow. It’s on Infosys. I knew that they had built a global technology brand but they had spent hardly anything on marketing or on advertising. In fact they don’t spend any money on advertising. I said how is it possible? When I looked at their space there are other companies in that space which are spending a lot. Like there major competitors would be IBM and Accenture for instance, and they are spending tonnes and tonnes of money. These guys don’t spend.
So what do they do?
What they do is that they build personal relationships with their buyers, which is just amazing. They narrow cast this thing down. They know there target market very well which is really few companies. They know that there are five people who make purchase decisions within IT and they go after those people. There information systems are just fantastic. They are serving clients who compete with each other on different floors of the same building. Just think about the security issues here. The amount of trust that they have engendered is absolutely fantastic. They build a trust mark and not a trademark.
Examples that you have given till now are on the positive side. Can you give us some examples on the negative side?
There are several companies that have had a really really hard time building a global brand. I have written a case study about the number one ultra premium vodka from Russia. It’s called Russian Standard. They have not been successful in the US market. A product called Grey Goose, one of the successful vodkas in the US, comes from France. Then there is Absolut which comes from Sweden. There is a product called Chopin which comes from Poland. They are all really good expensive Vodkas but they don’t come from Russia. So these guys said provenance is so important because people should know that vodka should be Russian. They are drinking French vodka. French champagne is okay. But French vodka? But Russian Standard has had a hard time. Americans are either not comfortable drinking a Russian product and still feel a little jingoistic about this. Or they don’t care where the product comes from.
Any Indian examples?
The Tatas have been trying to build a global brand. There issue is that they have so many different companies and they all have different brands. Let me talk about Taj Hotels. In the US they have acquired three properties. They acquired the old Ritz-Carlton in Boston and rebadged it. They acquired The Campton House in San Francisco and rebadged it. So the two hotels became the Taj San Francisco and Taj Boston. And they acquired The Pierre in Manhattan and it is still The Pierre because the co-op that owns it refused to allow the world Taj on it. So it’s the Pierre, a Taj Hotel company or something like that. And then it’s a Tata company. So there are three brands. There is The Pierre, there is the Taj and it is to be called a Tata Enterprise as the case is with all the Tata companies.
So they have got a problem then?
I remember talking to Ratan Tata once and he was talking about the acquisition of Tetley, a very huge Tata Tea enterprise. Should it be Tata Tetley or will that damage the Tetley brand? They acquired Land Rover and Jaguar and they have been in automotive for a very long time. Should they be badging it Tata Land Rover? From your face you have already expressed an opinion, which I think they share. So they have had a problem building a global brand. When you grown by acquisition you acquire some brands that have their own equity, do you impose your own brand on them or you connect it in some way. It’s not that it cannot be done. Lenovo did it as an example of a Chinese brand because they moved out of Thinkpad which they used to make.
Since we have been talking about the Tatas, do you think the Tata Nano as and when it does manage to go abroad will face the provenance paradox despite all the publicity that it got initially?
The Nano will certainly encounter the provenance paradox and it’s a question of how they are going to get around it. Geely, which is one of the largest Chinese automobile companies, has had a hard time penetrating outside China . So what they did was that they bought Volvo, which is a very well known Swedish company and they now have dealerships that sell both Geely and Volvo. The hope is that by association people will associate Geely with quality which is what Volvo is all about. Volvo is known for safety, durability and quality. Whether it will work or not we don’t know.
Something like a Yoga which has been a very successful Indian export to the US. Why did that not encounter any provenance paradox?
The story of yoga in the US goes back to Swami Vivekananda. He was the one who popularized India, Indian philosophy, Hinduism, eastern spirituality and a part of that was yoga. It had to do with meditation. It had to do with breathing. It was more of pranayam rather than the asanas. When he came to America he was so charismatic. He was a rockstar before they had a term like that. There would be audiences overflowing in Chicago, Los Angeles, New York etc. They would come to his lectures. He would be wearing a saffron robe and a turban and he would talk about his stuff. For the intelligentsia and the affluent it became a kind of a chic thing to explore India. This is way before the Beatles came to India for Maharishi Yoga.
This was the late 19th century…
So this was how it got started. Now fast forward to the last ten years or so. Yoga devotees in the US are largely the women. It is seen as a form of exercise that is low body stress, very healthy, and more natural exercise than what had been popular before and to some extent and still is, which is aerobics. Before that it was running. So yoga is seen as a better form of exercise than those and that is a big part of why yoga became popular. It does not anymore have a connection with Hinduism. And therefore not as much of a connection with India. So provenance has been disconnected from yoga.
And that has happened over a long time period of time?
It has happened over a long period of time but the popularity of yoga is relatively recent. It is now a $6billion per year industry in the US. And it’s a pyramid and only a few people at the top are doing very well. And there are lots of yoga teachers who are working out of a mall and who are eking out a living, but they don’t make much money. An example of someone who has done really well is Bikram yoga. I don’t know if you know Bikram Choudhury. So he has this particular kind. It has to be at a certain temperature. It is only 26 asanas. Then there is Tara Stiles. She is Deepak Chopra’s yoga teacher. She doesn’t say anything in Sanskrit. It is very new age. She uses social media a lot to communicate. So I think yoga been disconnected from provenance.
You write that Indian and Chinese firms that face the provenance paradox currently can learn a lot from the Japanese firms of the 1950s and the Koreans of the 1980s. Could you discuss that in some detail?
The Korean studied what the Japanese did and what the Japanese did was at the low end. You enter at the low end and come up with a really really high quality product which doesn’t break down. You offer it really cheap and nobody wants the low end because they are all busy moving up into the high end. They have got legacy investments so they got to charge higher prices. So you get in. You keep improving your brand and you gradually keep moving up. The Japanese moved up as high as the market would let them. So in the case of Toyota it was Lexus. In case Honda it was Acura and in case of Nissan it was Infiniti.
And the Koreans learnt from this?
The Korean car manufacturers watched that and they are now outsmarting the Japanese in many ways because they are coming in with the same low end strategy but they are moving up faster. And they are moving up faster, so far at least, keeping the same brand. So Hyundai has been very successful. Kia has been very successful. The other examples from Korea are Samsung and LG in electronics. What they did is they looked at what Sony did and what Matsushita and what Panasonic did and they are copying that strategy but going one step better. So the Japanese are in a little bit of disarray right now for a variety of reasons and Koreans are overtaking them. Samsung is now taking away significant market share away from Sony.
So how would it work in the context of let’s say an Indian IT company like TCS?
We have already seen the IT companies like Infosys, TCS and Wipro, doing a very good job at the low end, which is basically what they were doing with call centre kind of work and business process redesign work. But moving up the chain is proving to be difficult. So here you are not just moving up in price but you are moving up in the nature of the service being offered because now you are getting into strategic consulting work which is a sort of the domain of the IBM’s consulting services or Accenture’s consulting services. And that’s become an issue. Also what has happened is a lot of these competitors like IBM and Accenture have said you know what if it is a labour cost advantage, let’s invest in India and set up huge operations there.
Yes that is true
So IBM’s largest employment is in India now. Accenture has huge investments here. And then what makes it even more serious for companies like Infosys and TCS is that many of their key clients have said that we will set up our own IT operations in India. And they call them captive. And they are saying that we don’t have to worry about somebody else’s security systems or value systems for that matter. We will train them. They are our employees. Fidelity which is a very large financial services institution headquartered in Boston has significant investment in India and they are planning to increase their headcount here. And a lot of that work was being done by Infosys.
So basically Indian IT companies cannot move on the up end and are also being hit on the low end?
That’s right. That is the big picture. All these strategies work for a while but then somebody figures it out. It is so dynamic and that’s what makes it so exciting.
Can you tell us something about the course you are teaching in India?
It is a course that was designed at the Harvard Business School to cover topics of ethics and corporate governance. These were topics that were not being covered in any significant way in our curriculum. And after some history of trying to cover them within mainstream subjects like marketing ethics for instance or financial ethics, we decided to come up with a full course.
It’s a compulsory course?
It’s required first year MBA course. It’s taught not as ethics but it’s taught as a leadership course. And so one of the frameworks that we use is what we call the three lenses of leadership. And the three lenses of leadership are financial lens, the obvious one, the legal lens and the ethical lens. And the notion is that in framing problems you want use all three lenses. Students like to come to a business school because they like to learn about the financial lens. They are really not thinking about the legal lens. And they don’t even know how to formulate questions around the ethical lens. And that’s what we talk about.
The article was originally published on www.firstpost.com with a different headline on November 26, 2012.
(Vivek Kaul is a writer. He can be reached at [email protected])
“The average life of a good government is 7-8 years”
Ruchir Sharma is the head of Emerging Market Equities and Global Macro at Morgan Stanley Investment Management. He is a regular sprinter and last year he participated in the World Masters, a track and field event for men and women over 35, running the 100 metre and 400 metre events. Earlier this month his bestselling book Breakout Nations – In Pursuit of the Next Economic Miracles won the Tata Literature Live! First Book Award.
Seated in his 19th floor office in the middle of what used to be Mumbai’s textile mill district he said “my problem with India when I wrote the book last year was whether expectations where running too high and that we were extrapolating 8-9% growth endlessly into the future. Expectations have been ratcheted down dramatically since then and now a 6% is taken as a new normal.”
Sharma is optimistic because expectations have been reset. But he still feels conflicted about India because he finds that at the centre things are dysfunctional. “One of the rules of the road I had in the book that typically the average life of a good government is seven to eight years. After seven-eight years you tend to get diminishing returns for government. This is true about even best governments in the world led by the likes of Margret Thatcher, Francois Mitterrand and there are very few outliers like Lee Kuan Yew who do well for decades,” said Sharma. “No matter what the government does now, whatever reforms they announce is viewed cynically, and it doesn’t stick because the credibility is just so slow after being in power for so long,” he added.
His other big worry are the bureaucrats in Delhi who are not cooperating and seem to be hedging their bets. “From whatever I get to gather is that the bureaucracy is not that cooperative anymore because they are scared about being associated with any decision. You never know as to how they will be investigated further. Second problem is that some bureaucrats are also not keen to be too closely aligned with the government because they don’t know what is going to happen after 2014. So they are into hedging their bets,” explained Sharma. “Bureaucrats also feel let down by the politicians for having been arm twisted into taking decisions on behalf of politicians which were not always the correct decisions for the country and now they are paranoid to take any decisions,” he added.
The good thing Sharma feels is that the government has at least recognised that they have a problem at their hands and keep spending their way to eternity. “Till a year ago, even in April, there was no recognition of the problem. And that to me is at least a positive that we can look on,” he said. “The real fear that I have now is that we do all this now and this is only prepping up to put out another populist scheme at the end of it, at the first sign when things are manageable. To me the real signal will come if they back down on these populist schemes such as the whole food subsidy bill etc. Not because it’s bad thing to do, but you can’t keep writing cheques which the exchequer can’t cash.”
Once, the government stops being populist only then can they control inflation and thus hope to bring down interest rates. As Sharma puts it “The problem is the same that unless we put an end to this populist surge in terms of spending you can’t get a meaningful decline in interest rates. That really is at the core of the problem as far as inflation and interest rates are concerned. How do you put an end to that culture? That genie is out of the bottle. How do you put it back in?.”
Also, the risk of a downgrade by one of the rating agencies is terribly overdone feels Sharma. “I just feel this fuss about that is really overdone to be honest with you because who cares! They are far behind, so whether we get downgraded or not, to me it just doesn’t matter. The reasons for the downgrade are already well known. If it happens it will be a formality. It will be a short term negative undoubtedly,” he said.
The article was originally published in the Daily News and Analysis (DNA) on November 26, 2012.
(Vivek Kaul is a writer. He can be reached at [email protected])