45% of black money abroad has gone during UPA regime


Vivek Kaul

 

It’s a season of clean chits. The latest to join the bandwagon is Annu Tandon, the Congress Lok Sabha MP from Unnao, supposed to be close to Congress general secretary Rahul Gandhi.  “Allegations against me are absolutely baseless and malicious… I completely deny all this rubbish,” Tandon said, giving herself the clean chit.
“I had gone to the Congress meeting and have just learnt of the allegations…I feel saddened that instead of doing something to benefit the nation we are speaking about lowly matters,” she said, adding that Kejriwal was perhaps seeking publicity by making such allegations. She stopped short of saying I am ready to face any investigation, as politicians are won’t to say in such cases.
Arvind Kejriwal’s in his latest exposure has said that about Rs 6000 crore of black money was lying in the Geneva branch of HSBC as on July 2011.  This list included the brothers Mukesh and Anil Ambani, Reliance Industries, Motech Software (a Reliance Group company whose managing director Annu Tandon was), Naresh Goyal  of Jet Airways and Sandeep and Annu Tandon. Annu Tandon and her late husband Sandeep have been accused of having Rs 125 crore each stashed away in their HSBC Swiss Bank account.
There is no way of independently verifying who has how much stashed away in the Geneva branch of HSBC, unless the bank chooses to reveal it. But at a broader level it can safely be said that a lot of Indian money does end up in Swiss banks and other tax havens abroad.
And the quantum of this money going out of India is huge. A report titled Illicit Financial Flows from Developing Countries Over the Decade Ending 2009 released by Global Financial Integrity in December 2011, gives us some astounding numbers. This report was written by economists Dev Kar and Sarah Freitas and was supported by the Ford Foundation.
In the period 2000-2009 the illicit capital flows from India stood at a whopping $104billion. Currently one dollar is worth around Rs 55. Hence in rupee terms this amounts to a huge Rs 5,70,00 crore. To give the reader a sense of comparison the fiscal deficit of the government of India for the financial year 2012-2013 ( i.e. the period between April 1, 2012 and March 31, 2013) was initially estimated to be at Rs 5,13,590 crore. Fiscal deficit is the difference between what the government earns and what it spends. So the black money that went out of India in the period 2000-2009 was more than the fiscal deficit of the government of India in the current financial year. Hence the numbers clearly aren’t small by any stretch of imagination.
And this not a recent phenomenon. In another report titled The Drivers and Dynamics of Illicit Financial Flows from India: 1948-2008brought out by Global Financial Integrity and written by economist Dev Kar, it is shown, that black money has been going out of India for decades, though it has gone up in recent years.
Kar estimates that in a period of 61 years from 1948 to 2008, India lost a total of US$213 billion dollars due to illicit flows, the present value of which is at least US$462 billion. In rupee terms this works out to a whopping Rs 25,317,60 crore.  This number is almost 5 times the fiscal deficit of the government of India for the year 2012-2013.
And chances are this number is understated. As Kar writes “In all likelihood, this estimate is significantly understated because economic models can neither capture all the channels through which illicit capital can be generated nor the myriad ways in which the capital can be transferred.”
In an interview I carried out for the Daily News and Analysis (DNA) in April 2009, Professor R Vaidyanathan of IIM Bangalore had put the number at $1.4trillion or more than Rs 70lakh crore at that point of time.  “More amounts were stashed away during the Nehruvian socialist regime…In fact, in those days, the Indian rupee commanded a better value per US dollar, so fewer rupees could get a dollar. Hence the estimation that Indian money stashed away may be of the order of $1.4 trillion,” Vaidyanathan had said.
Another estimate has been put forward by Arun Kumar, a professor at the Jawahar Lal Nehru University in New Delhi and the author of Black Money in India. An article on Firstpost quotes him as saying “At least $70-80 billion goes out every year.” That is an astonishingly huge number. In comparison Kar and Freitas put the total amount of money that went out of India between 2000-2009 at $104billion.
What is interesting is that a major portion of the black money in India ends up at Swiss Bank and other tax havens abroad. As Kar puts it “The total value of illicit assets held abroad represents about 72 percent of the size of India’s underground economy which has been estimated at 50 percent of India’s GDP (or about US$640 billion at end 2008)…This implies that only about 28 percent of illicit assets of India’s underground economy are held domestically, buttressing arguments that the desire to amass wealth without attracting government attention is one of the primary motivations behind the cross-border transfer of illicit capital.”
Kar’s research also shows that a lot of black money has gone abroad since the United Progressive Alliance (UPA) government led by Sonia Gandhi came to power. Between 2004 and 2008 around $96.3billion dollars of black money has gone abroad. Kar puts the total flow from 1948 to 2008 at a little over $213billion. This means that nearly 45% ($96.3billion expressed as a percentage of $213 billion) of the total black money that has gone abroad since independence has gone during the rule of UPA. UPA came to power in May 2004.
What this clearly tells us is that crony capitalism has gone through the roof since Manmohan Singh became the Prime Minister of the country. Businessmen and politicians are the most likely candidates for sending their ill gotten wealth abroad. Also, the data is available only till 2009, and corruption has only gone up since then.
The money going abroad has also gone up since India adopted a policy of economic liberalisation in 1991. Between 1991 and 2003 around $50.3 billion of black money went abroad, as per Kar’s estimates. Hence between 1991 and 2008, a total of $ 146.6 billion ($50.3billion + $96.3 billion) of black money has gone abroad.
All this money going abroad has had a huge impact on the economic development of India. As Arun Kumar wrote in an article in The Hindu in August 2011 “India could have been growing faster, by about 5 per cent, since the 1970s if it did not have the black economy. Consequently, India could have been a $8-trillion economy, the second largest in the world. Per capita income could have been seven times larger; India would then have been a middle-income country and not one of the poorest. That has been a huge cost.”
Annu Tandon in her reaction to the accusation of stashing away black money to the tune of Rs 125 crore abroad said “I feel saddened that instead of doing something to benefit the nation we are speaking about lowly matters.”
Yes these are lowly matters but given that they have cost the nation so much, they need to be talked about. And since the government and the Congress Party refuse to talk about these things it’s up to the likes of Arvind Kejriwal and Prashant Bhushan to bring it to the notice of the nation.  And if that means, as Tandon put it that Kejriwal is seeking publicity, then so be it.
Oh and in the end, let’s be ready for another round of clean chits.
The article originally appeared on www.firstpost.com on November 10, 2012. http://www.firstpost.com/economy/45-of-black-money-abroad-has-gone-during-upa-regime-521434.html
(Vivek Kaul is a writer. He can be reached at [email protected])

Kirana vs Wal-Mart: Busting the big myths of big retail

 
Vivek Kaul
In a rather poignant scene in Zoya Akhtar’s Zindagi Na Milegi Dobara, the character played by Farhan Akhtar, is sitting face to face with his biological father, played by Naseeruddin Shah (in a brilliant cameo). As the story goes, Shah had abandoned Akhtar’s mother (played by Deepti Naval) after getting her pregnant and moved onto becoming a famous painter in Europe.
Akhtar finally calls up Shah, when on a holiday in Spain he and his two friends get involved in a drunken brawl and land up in jail. Shah comes and bails them out. After this, Akhtar asks Shah for the true reason behind abandoning his mother. To which Shah replies “Sach hota kya hai. . . sach ka har ek ka apna apna version hota hai!” (What is truth? Everybody has their own version of it)
This line written by Farhan Akhtar is at the heart of the current debate happening, after the decision made by the Congress led UPA government to allow foreign direct investment in multi-brand foreign retailing.
Those in favour of the decision have their own version of truth. And those against it have another version. Those in favour of the decision believe that allowing foreign investment will create jobs, build supply chains and overall help economic growth. Those against it firmly believe that it will destroy the neighbourhood kirana shop, as you, I and everybody else, hop onto Wal-Mart to buy stuff. I have my own version of truth which is somewhere between the two extremes.
The kirana store will survive: A lot of hue and cry has been made on this. Nitish Kumar the Chief Minister of Bihar believes that the aam aadmi will suffer because of FDI in retail and hence he won’t allow it in Bihar. The fact of the matter is that it is not easy to compete with the neigbourhood kirana store. My kirana guy even goes to the extent of delivering things that he does not sell, like eggs and medicines, to ensure that I keep giving him business. As Rajiv Lal a professor at the Harvard Business School told me in an interview I did for Daily News and Analysis (DNA) “Kirana stores have a lot of benefits that established retailers don’t have. First of all location. What rents do they pay versus what established companies have to pay? Employees, same story. On the consumer side they can deliver services, in terms of somebody calls them and asks can you deliver six eggs? The guy runs and delivers six eggs. That’s not something that the big established firms can provide.” (You can read the complete interview here)
No homogeneity across India: An important factor for big retail to be successful is the homogeneity of the population in consumption behaviour. This gives them economies of scale. As marketing guru V Kumar told me in a recent interview I did for DNA “Does the country as a whole consume common things or there are regional biases?  In a country like Brazil people eat similar foods that every retailer can sell.” In India clearly things are different. “In India between South, East, West and the North, there is so much heterogeneity that you need localized catering and marketing .So consumption behaviour varies therefore unless you are willing to carry heterogeneous products in each of the locations it is tough,” said Kumar (You can read the complete interview here). This is a challenge that foreign retailers will have to deal with.
The real estate conundrum: A typical Wal-Mart in the United States is situated outside the city, where rents are low. But such a strategy may not work in India. “It’s not easy to open a 150,000 square feet store in India. That kind of space is not available. They can’t open these stores 50 miles away from where the population lives. People in India don’t have the conveyance to go and buy bulk goods, bring it and store it. They don’t have the conveyance and they don’t have the big houses. So it doesn’t work,” explained Lal. This is something that Kumar agreed with. “Even if Wal-Mart is there in every place, the way they are located is typically outside the city limits. So only people with time, motivation and a vehicle, will be able to go and buy things. And the combination of these three things is very rare.” The kirana stores also provide goods on interest free credit to their customers something that no big retailer can afford to do.
The fear of Wal-Mart and others of its ilk is overdone:  It is widely believed that wherever Wal-Mart goes it destroys the local business. As Anthony Bianco writes in The Bully of Bentonville – How the High Cost of Wal-Mart’s Everyday Low Prices is Hurting America “It (Wal-Mart) grows by wrestling businesses away from other retailers large and small. In hundreds of towns and cities, Wal-Mart’s entry put ailing …shopping districts into intensive care and then ripped out the life-support-system.”
But that is truer for markets like Canada, Mexico and United Kingdom, which are culturally and geographically closer to the United States. The Wal-Mart formula doesn’t always work everywhere. Pankaj Ghemawat, who has the distinction of being appointed the youngest full professor at the Harvard Business School, writes about this in his book Redefining Global Strategy,  “When CEO Lee Scott (who was the CEO of Wal-Mart from 2000 to 2009) was asked a few years ago about why he thought Wal-Mart could expand successfully overseas, his response was that naysayers had also questioned the company’s ability to move successfully from its home state of Arkansas to Alabama…such trivialisation of international differences greases the rails for competing exactly the same way overseas at home. This has turned out to be a recipe for losing money in markets very different from the United States: as the former head of the company’s German operations, now shut down, plaintively observed, “We didn’t realise that pillowcases are a different size in Germany.””
What is the experience from other emerging markets? Big retail has got some traction in countries like China and Brazil. As Kumar put it “If you look at evidence from China organized retailing has got more traction. That’s because they did not have many mom and pop stores to begin with. They were cultivating their own things which was locally community based. But with more cities coming up and migration of people from rural areas to cities, gives more scope for organised retailing in China. Also space is not an issue in China. In India space is a constraint. Look at China and India. China is much bigger than India but the population is pretty much similar. Look at Brazil, it is as much bigger than India but the population is maybe one sixth that of India.  So they also have space.” Whereas space remains a key constraint for big retail stores like Wal-Mart, Tesco and Carrefour in India.
Also in almost all emerging markets a local company is number one. As Lal told me “There is not  a single emerging market that I know where a foreign entrant is the number one retailer. In Brazil it is Pão de Açúcar, in China you have the local Beijing Bailian. In most markets even when there are foreign entrants the dominant retailer in the organised sector is still the local retailer.”
And there are several reasons for the same. The local retailers are very price competitive. “If Wal-Mart is operating in Brazil there is nothing that Wal-Mart can do in Brazil that the local Brazilian guy cannot do. If you want to procure supplies from China, you can procure supplies from China as much as Wal-Mart can procure supplies. On top of that they have local merchants that they know they can source from and Wal-Mart may not,” said Lal.
Will foreign players be able to crack the market, when most of the Indian retailers are bleeding? The biggest Indian business groups have tried to crack organized retailing over the last decade. The Tatas, the Birlas, the Ambanis, all have a significant presence in the sector. But despite that organized retailing remains a small part of the overall retail business. As Sreenivasan Jain writes in the DNA: “For starters, India has had big or organised retail for about 15 years now, not a small stretch of time. Some of the biggest Indian corporates are in this space, like Reliance, the Birlas, Godrej, RPG (Sanjeev Goenka Group) and Kishore Biyani’s Future Group. Despite this, organised retail is only 5% of the Indian retail market. The remaining 95% is still unorganised.” (You can read the complete article here).
And all these big players are losing money hand over fist. “Last year, Reliance Fresh posted a loss of Rs 247 crore, Bharti posted a loss of Rs 266 crore, and Aditya Birla group, which runs the chain of More supermarkets, posted a loss of Rs 423 crore. Some retail chains have actually shut down, like Subhiksha which at one time had almost 1,500 outlets,” writes Jain.
It is in the interest of these firms that foreign investment is allowed in the sector, so that they can sell a part of the equity to foreign firms. Those in favour are of the opinion that these firms do not have the necessary expertise which the foreigners will bring in. This argument does not really work. Bharti Enterprises which runs the Easy Day stores has a back-end and cash-and-carry partnership with Wal-Mart. Star Bazaar, run by the Tata group is offered back end support by Tesco. So the big retail giants are in a way already operating in India.
Another point put forward by those in favour of foreign investment in retail is that it will help build reliable supply chains across the country. Theoretically yes, but the trouble is supply chains cannot be built if it’s left to the states to decide whether they allow foreign retail or not. Supply chains need to be seamless, they cannot be built if one state allows foreign retail and the neighbouring state does not. Also, we must remember that despite the presence of these heavy weights in the retail sector the kirana shops still continue to function as they had before.
So what is the future going to be like?  It is difficult to predict what the future of the likes of Wal-Mart, Tesco and Carrefour in India is going to be. But one thing is for sure. They won’t find it easy. As far as Wal-Mart goes Kumar had this to say “There will be a market if they are content at not being the largest retailer. If they say in India I am one among many, they will have a presence. Maybe at some point in the future, things might change, like Wal-Mart buying other retailers and that’s the way they can expand. Their specialty is supply chain and turning the inventory over multiple times than other retailers. They cannot turn it over multiples times here. Each time if they make a 1% margin they get a higher margin due to turning the inventory over multiple times. Here I don’t see them turning it over as many times as in other markets. It’s very difficult to do that.”
Kumar also predicts that over a period of time the likes of Wal-Mart will be forced to buy the smaller kiranas in order to expand. “My prediction is this that mom and pop stores or kiranas as we call them will become more and more sophisticated. Today the store owners know people by their names, as the number will grow they will have to start building a database, but they don’t have the capabilities. So organised retailing will start buying mom and pop stores individually. And then they will put all of them under one banner. It will be like how Tesco is operating in the U.K with different store formats. You have Tesco supermarket, convenience store, street corner store, express etc. So that is the way in India you will see this evolving because otherwise there is no growth for them,” said Kumar.
So my version of truth is somewhere in between those who support foreign investment in mutli brand retailing as it’s called, and those who don’t. Big retail will not be the panacea it’s being made out to be. Neither will it destroy the smaller shops as is being claimed. It will have to create its own space. And that will only happen over a period of time.
This article originally appeared on www.firstpost.com on September 18, 2012. http://www.firstpost.com/business/kirana-vs-wal-mart-busting-the-big-myths-of-big-retail-459490.html#disqus_thread
(Vivek Kaul is a writer and he 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]mail.com)

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])

What Ramdev, Biyani, Mallya and Govt can learn from Buffet



Vivek Kaul

So what is common to Baba Ramdev, Kishore Biyani, Vijay Mallya and the government of India, other than the fact that they have all been in the news lately? To put it simply, they all like operate in areas where they lack expertise and in the process make a mess of it.
Let us start Baba Ramdev who became a household name by selling the benefits of Yoga to the masses. He claimed that even diseases like cancer could be cured through yoga. Those who have seen his yoga DVDs will recall the line “karte raho, cancer ka rog bhi theek hoga”.
So far so good. Then he decided that he had enough of preaching yoga and wanted to get into politics and vowed to get all of India’s black money hoarded abroad, back to India. The politicians in the government clearly did not like this (for obvious reasons) and went hammer and tongs after him. Stories were leaked to the media about the wealth he had accumulated over the years and that damaged his credibility as a yoga guru as well. Ramdev has continued in his attempts to establish himself as a politician but with very little success.

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.
Vijay Mallya started Kingfisher Airlines in 2005, going beyond his core business of alcohol. Kingfisher now has accumulated losses of over Rs 6000 crore, and has never made money since its launch. The lack of focus has hurt Mallya’s core alcohol business 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.

And finally the government of India, which has been bailing out the troubled airline Air India over and over again. The pilots of the airline keeps going on strike and the government keeps putting a few thousand crores every few months, to keep running the airline.
So the question that crops up here is what is Baba Ramdev doing in politics? Why is Kishore Biyani trying to sell insurance and mobile phone connections to you? And why are Vijay Mallaya and the government of India trying to run an airline?
They would be better off concentrating on things they are good at. These are things they shouldn’t be doing. It is not their area of expertise or what they are good at. The days when individuals, businesses and even governments could be an expert at many things at the same time are long gone.
In the last 100 years there have been only two individuals who have won the Noble prize twice for two different subjects. Marie Curie won the physics prize in 1903 and the Chemistry prize in 1911. Linus Pauling won it twice, the Chemistry Prize in 1954 and Peace Prize in 1962.
So in the strictest sense of the term, Marie Curie is the only person ever to have won a Noble prize in two different subjects and that happened almost 100 years back. This is primarily because as more and more things have been invented and discovered, subjects have become more complex requiring full time attention and expertise.
What is true about individuals is also true about businesses. The expertise and the attention required to run a business has increased over the year. Hence, the moment a businessman tries to go outside its area of expertise, he loses focus, and the chances of the new business doing well are remote.
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 by selling its stake to HCL. Now why is a computer major trying to buy into an insurance business which is losing money, is beyond me?
Satyam was in good shape till it remained an IT company. The moments its owner developed aspirations beyond IT and got the company into real estate and infrastructure space, trouble cropped up. Real estate companies have tried unsuccessfully to get into the luxury hotel business and hotels have tried unsuccessfully to get into the luxury apartment business.
Reliance Industries attempts in the retail business haven’t gone anywhere. Anil Ambani who had build a good business in Reliance Capital is struggling with Reliance Communications and Reliance Power. Subrata Roy’s attempts to diversify into the film and television business have come a cropper, with the film business of Sahara, more or less being shutdown. NDTV, a premier English news channel, tried getting into the entertainment channel business with NDTV Imagine. It had to sell out. Cigarette major ITC has been trying to establish itself in the FMCG business for years now. Though it has had some success at it, the business hardly throws up any money in comparison to its cigarette business. All kinds of entrepreneurs have gone into the insurance business in India and are now struggling. This includes Kishore Biyani. At the same time the Tatas have been struggling with their telecom business for years.
There is a thing or two all these guys can learn from internationally renowned investor Warren Buffett. During the period of 1994-2000, the United States saw a whole lot of dotcom companies coming up with their initial public offerings. Some of these shares achieved astonishing highs. The shares of Netscape Communications Corporation, an internet browser company which controlled 75% of the browser market, were sold to investors at $28 per share. When the stock was listed on August 9,1995, it went to $74.75 during the course of the day and finally closed at $58.25, doubling in a single day. Another stock booksamillion.com went up by 973% to $47 in the course of just three days in November 1998. theGlobe.com which listed on November 13,1998, gained 606% during the course of the day and closed at a price of $63.50.
Despite these humungous gains Warren Buffett did not invest a single penny in these stocks. He did not understand the business models of these stocks and remain focused on his investment philosophy of “value investing”. Not surprisingly he had the last laugh as dotcom and technology stocks started crashing after they had peaked in March 2000.
Buffett did not abandon his core philosophy of value investing just because there was “easy money” to be made somewhere else. And he came out on top, for the simple reason that he chose to remain focused on what he knew.
But this is rarely the case. When times are good and there is a lot of easy money floating around every entrepreneur likes to “expand” his business and get into other things. But in this day and age, when things are as complicated and competitive as they are, diversification into different businesses rarely works.
Businesses these days need full time attention from entrepreneurs. Let’s take a look at the airline business. As Warren Buffett put it in a letter he wrote to the shareholders of Berkshire Hathaway “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.”
The reason airline businesses burn capital endlessly is for the simple reason that airlines have very little control over their cost. The major expense in running an airline is oil (the company can lease the aircraft it doesn’t have to always buy them). And oil prices have been over $100 per barrel for a while now. Airline companies have no control over this price, though they can hedge themselves by buying derivatives. But that can be a risky business as well.

So higher the oil price, higher is the cost of running an airline and given the lure of owning an airline, the sector remains a very competitive one, all over the world. Hence companies cannot always pass on an increase in their costs to the end customers though higher ticket prices. Given these reasons airlines are a specialised business, which require full time attention. It is definitely not a business which Vijay Mallya can look to successfully manage, busy as he is running his diverse businesses of alcohol and real estate, indulging in expensive hobbies like IPL and Formula 1, and cheaper ones like commenting regularly on Twitter.
The government of India falls in the same category. Its primary area of activity is governing the nation(which it is anyway making a mess of) and not running an airline. It simply doesn’t have the expertise to run one. Southwest Airlines is successful because it has remained focused on the airlines business. It did not suddenly decide to launch a new beer just because their airline business was constantly throwing up cash over the years.

Kishore Biyani should learn from his inspiration Wal-Mart. The company did not get into the insurance business. They did not say “now that we have so many people coming to our stores, let’s try and sell insurance to them along with fast moving consumer goods”. Or as Warren Buffett puts it ” If you buy things you don’t need, you’ll soon sell things you need.”
That leaves Baba Ramdev. He can learn from his more famous predecessor the Sai Baba of Puttaparthi. Given the following he had he could have easily gotten into politics. But that would have put him at the same pedestal as the politicians who looked up to him as their guru. And thus rightly he did not.
Marketing guru Al Ries has said in the past “Focus is the essence of marketing and branding.” I guess it’s time to rephrase that phrase. “Focus is the essence of marketing, branding and business”. And its time Ramdev, Biyani, Mallya, the government and many others learnt that lesson.

(The article originally appeared on May 10,2012 at http://www.firstpost.com/business/what-ramdev-biyani-mallya-and-govt-can-learn-from-buffett-304770.html).

(Vivek Kaul is a writer and can be reached at [email protected])