Tuesday, July 31, 2012

No international migraine!

The Country Terrorism Report published by The US seems more led by an Ulterior Agenda, as the report ignores the wolves and castigates the sheep when it comes to deciding who sponsors terrorism and who doesn’t

Dalai Lama once aptly said, “Today, more than ever before, life must be characterized by a sense of universal responsibility, not only nation to nation and human to human, but also human to other forms of life.” As an anti-thesis to his terminologies on universalism, the Country Reports on Terrorism 2010 published by the US Department of State on August 18 lacks credibility, uniformity and above all a sense of universal responsibility.

In the latest report, al-Qaeda (AQ) has been identified as “the preeminent terrorist threat to the US in 2010.” The report has completely overlooked the fact that today, AQ is on the verge of collapse after Osama’s death and various other terrorist groups such as al-Shabab in Somalia (an attack by them on August 23, 2010 killed over 300) and Pakistan’s domestic Taliban have become more dangerous over time.

But the current report also makes many faux pas with respect to so-called factualities. Cuba, Iran, Syria and Sudan have been named “state sponsors” of terrorism activities. On one hand, the report says that “there was no evidence that it (Cuba) had severed ties with elements from Revolutionary Armed Forces of Colombia (FARC)”; but on the other, it acknowledges that “the Cuban government maintained limited contact with FARC members, but there was no evidence of direct financial or ongoing material support”. Strangely, while terming Cuba as a “state sponsor” of terror, the US continues to refuse to handover Luis Posada Carriles (referred as “one of the most dangerous terrorists in recent history” by Peter Kornbluh of the National Security Archive) to Cuba. Posada has been convicted of a series of bombings and an assassination attempt on Fidel Castro in Panama.


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Sunday, July 29, 2012

“Peaking Valuations may slow down M&A”

Anjan Sen, Director, Strategy & Operations, Deloitte India

B&E: With the growing health care market in India, Reckitt Benckiser recently bought Paras Pharmaceuticals for about $726 million. What is the scope of such deals in pharma sector in India?
Anjan Sen (AS): The market is currently worth roughly $12.6 billion and is growing at 14+% CAGR. If it keeps on its current growth path, it will achieve $22 billion by 2015. India is set to overtake Brazil and become the 10th biggest pharma market by value worldwide in 2012. The gap between volume and value figures (India is 3rd by volume and 11th by value) should be reduced through governmental intervention (regulations, pricing controls, et al). Post the recent deals, it is felt that valuations are very high in India and M&A activity may slow down unless true synergies can be obtained through acquisition.

The key trends and macro factors driving M&A activity in the pharma industry include the patent cliff ($160 billion sales drop expected in 2012 alone), increased cost pressures and corresponding demand for generics, and access, i.e. favourable government regulations in India. Through partnership or acquisition, pharma companies can strengthen core capabilities in R&D, manufacturing, marketing, and distribution. These trends point towards continued deals in the India pharma sector; however, it must also be noted that valuations are peaking and there is likely going to be a slowdown in the pace of M&A activity, unless more prospect target companies emerge.

B&E: The Indian pharmaceutical industry forms around 8% of world pharmaceutical production. The trend of Indian companies being increasingly targeted by multinationals (MNCs) for both collaborative agreements and acquisitions has been picking up over a couple of years. Does the sector environment favour consolidations in coming years?
AS: It is likely there will be more focus on product asset acquisition rather than corporates. As opposed to M&A, alliances or strategic partnerships are expected to increase in order to leverage core competency strengths in R&D, manufacturing, marketing and distribution.

A reverse trend will emerge, where Indian pharma companies will continue to acquire abroad. Currently, around $2 billion has been spent by Indian entities abroad and this trend is expected to continue with management willingness to globalize and leverage partners’ strengths in foreign markets.

It must also be noted that regulations are key and must continue efforts to make the market investment friendly, through increased focus on investment (FDI) allowances, transparency and patent/IP protection. Enhanced spending on infrastructure development and improved access through mass insurance schemes are also factors supporting collaborative agreements in the sector going forward.




 
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Friday, July 27, 2012

“If The World Collapses, we will feel The Pain”

Arvind Mehta, Joint Secretary, Ministry of Commerce, Government of India

B&E: What is the growth forecast of commerce in 2011 for India?
Arvind Mehta (AM): Exports should touch $300 billion. It’s a little ambitious to my expectations, mainly because of 3 or 4 major sectors. Petroleum exports are going to be high mainly because we have gained higher refinery capacity. This is presupposing that no major bump happens in the European economy, which is an area of great concern. The American Economy is also a concern but right now, the focus is on what’s happening in Italy, Greece, Portugal, Spain, and Ireland.

B&E: What would be the level of impact on Indian economy if there is a European economic crisis, something which is very much expected?
AM: There can be an overall slowdown that can impact the domestic side also. But I am always optimistic that we can outperform the other economies. So whatever happens, it has to be seen in relevant terms, as we are looking at 8.5% economic growth right now.

B&E: Talking about inflation, how much do you think this could impact the entire demand-supply situation?
AM: Everybody seems to take inflation numbers wrongly and it is difficult to have a guess but generally if you look at it the optimistic way, then the authorities try and contain the inflation rate to below 5% but that never works out. The more realistic kind of people talk about the Inflation rate at about 7-8% which is reasonably a good estimate. So if your monsoon is good, we should not worry about double digit inflation and if it’s good and you are able to control inflation even at the level of 7-8%, then it’s something, which the Indian economy has been taking its stride since many many years in the past. In fact, one good news happening in a sense is if we look at last year’s inflation, which was close to 11% and the growth rate, which was almost 9%. So in nominal terms, we grew at nearly 20% and in real terms, we grew at nearly 9%.

B&E: Do you feel that falling growth rate combined with the European and American economic situation could hamper our growth?
AM: We have seen some slowdown; at least that’s what most people think. There is rationale in the view that Indian economy will also see some slowdown but as long as export markets are not impacted too heavily, the slowdown may be more moderate in comparison.


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Thursday, July 26, 2012

India Inc. Needs a Lokpal too!

Reliance Industries ltd. Catapults itself to The Number 1 Position backed by Robust Refining & Petrochemical Profits. But it can Certainly do even better than that

In terms of absolute revenues, Wal-Mart with revenue of $421.85 billion (profit of $16.39 billion) and Exxon Mobil with revenues of $354.67 billion (profit of $30.46 billion) in the year 2010 are at the pinnacle of the Fortune 500 list in America, and have dominated the corporate world for many years now. So as Reliance Industries relentlessly strives to extend its leadership position in petrochemical refining to E&P and further to retail and therefore become ‘Exxon Mobil plus Wal-Mart’ in the Indian context, it’s headed to unprecedented & insurmountable glory. And this is discounting sectors like financial services (with the takeover of Bharti’s stake in AXA) and telecom where RIL is keenly eyeing a larger play.

With a net profit of Rs.202.86 billion (growth of 25% yoy) for FY 2010-11, RIL is at the top of this year’s B&E Power 100 list and taken the spot from ONGC. Turnover of the company has increased by 29% to Rs.2.58 trillion. Chairman Mukesh Ambani quoted on the results, “Global economic growth, emerging markets demand and tightness in the markets led to recovery in refining margins and record petrochemical earnings.” A far as the segment-wise results are concerned, the petrochemicals business reported a profit after tax of Rs.95.4 billion (growth of 10.4% yoy), refining profits were Rs.91.56 billion (growth of 51% yoy) and oil & gas reported profits of Rs.57.99 billion (growth of 11% yoy).However, the textile, retail, SEZs and telecom businesses, clubbed as ‘others’ suffered a loss of Rs.4.13 billion. Reliance Retail alone showed a loss of Rs.3.51 billion for the fiscal over a profit of Rs.182.2 million in the previous year. In recent news articles, Reliance claimed that it already is the largest food retailer in India, even though it was later rebutted by Future Group CEO Kishore Biyani, who said that Reliance Retail could be largest in terms of number of stores but not revenue.

The company has done most of its investments in E&P and refining are complete and 50% of new investments have gone into shale gas forays and the broadband auction. A major highlight was the alliance with BP, wherein RIL sold 30% stake in its 23 oil and gas production sharing contracts in India, including KG-D6 block for around $7.2 billion and a 50:50 JV for sourcing and marketing of gas. Besides the financial upside, it would provide RIL with world class expertise to improve its recoveries. Moreover, the company entered into three shale gas production JVs in the US with Atlas Energy, Pioneer Natural Resources and Carrizo Oil & Gas. It also finally reentered telecom with a 95% stake in Infotel.


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Wednesday, July 25, 2012

“Google bullies Android Device Makers”

Florian Müller, Founder, FOSS Patents & Co-founder of Rival Networks

Munich (Germany)-based Florian Müller is an award-winning IPR activist with 25 years of software industry expertise spanning across different market segments and a variety of technical & commercial areas. Müller was perhaps amongst the first IPR experts to accuse Google of copying code from Oracle for its Android OS. He shares his opinions on the subject with B&E.

B&E: Many questions have been raised over copyright issues related to Android OS. How big are these problems for Google and the handset makers?
Floriam Müller (FM): They are a big problem for Google, but a far bigger one for its device makers. Most of the time it is the device makers who get sued, not Google. There are a few cases in which Google itself is named as a defendant, most notably Oracle’s lawsuit over seven patents and various copyrights. But for the most part it’s the device makers’ problem. Indirectly, that turns it into a problem for Google because if the intellectual property situation doesn’t come under control, some device makers may drop Android. Recently there was a rumor that Motorola is developing a mobile operating system of its own. There was some speculation that Motorola – which is being sued by Apple, Microsoft and a significant number of other companies for patent infringement – could be very concerned over the intellectual problems surrounding Android as well as Google’s heavy-handed control over Android.

B&E: You mentioned that most of the time, it is the device makers who get the stick in court. Could you explain this?
FM: By my count, 42 Android-related patent infringement suits have already been filed, and only two of them (Oracle and Skyhook) target Google exclusively, while the others name device makers as defendants. Most of the time it is just device makers being dragged to court.

B&E: With the cloud of lawsuits, can Google turn Android into a cash cow?
FM: In Google’s case, the cost of resolving all of the intellectual property issues Google faces could exceed the actual revenue opportunity, possibly even by far.

B&E: If patent claims against Android build up at this rate, what is the amount we are looking for that Google might have to pay up on order of the courts?
FM: It is very hard to estimate litigation costs, but the real strategic issue for Google won’t be one-time costs such as for litigation. They will mostly be concerned about per-unit royalties that make Android-based devices more expensive, hence less competitive.



 
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What Consumer Protection?

You really have to forgive me my cynicism, but as I see the euphoria over the Jan Lokpal Bill begin to wane, I just can't help recollect that old truism – the more things change, the more they remain the same! I am utterly convinced that even if the so called drafting committee is allowed to meet and debate sincerely; and even if by some miracle people like P Chidambaram, Kapil Sibal and Pranab Mukherjee do agree to what civil society activists want, the law that politicians and bureaucrats will finally pass will inevitably make that law an ass from day one. My cynicism is because our rotten system ensures that even the best of intentions and great and progressive looking laws become a farce.

Let me take you back to 25 years ago when a pre-Bofors Rajiv Gandhi regime was trying hard to reform our rotten system where the few always gained at the expense of the many. One of the laws passed during those days was the Consumer Protection Act. I still remember the hype and hoopla raised over the law in those days. Optimists crowed about how the law will enable ordinary consumers like you and me to punish companies peddling bad products and services. It was said that the consumer courts would be truly user friendly, would deliver speedy justice and work in a manner that lawyers won't be required at all. On paper, that tantalising promise made by the law still holds. In reality, millions of aggrieved consumers in India will tell you how that promise is a farce. Did you say no lawyers? Ask consumers who filed substantive complaints and they will tell you how companies often use batteries of expensive lawyers to browbeat them. Did you say swift and speedy disposal of cases? The sad truth is, pending cases in consumer courts have already exceeded unmanageable levels. Do you still dream about mythical David versus Goliath fights and the outcome? Well, dream on.

The same companies who would quake with fear at the power of consumer rights and punitive laws in developed markets treat Indian consumers like rubbish. Take any product or service category and – despite so called competition – companies in India get away with anything and the consumer gets nothing.


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Monday, July 23, 2012

The US Justice Department does not really have a strong Anti-Competitive case against AT&T

The Entire Telecom Fraternity is apprehensive about AT&T’s Buyout of T-Mobile. They say it will Benefit the buyer. It will. But the more Important debate is – will This Deal finally go through? B&E analyses why The US Justice Department does not really have a strong Anti-Competitive case against AT&T.

Fair enough. The only issue is – if we dig a little deeper, we discover that this decline in cellular rates do not add up. The CPI-U doesn’t measure the expenditure incurred on phone bills. With the increase in sales of tablets and smartphones, consumers are paying more for data services. Even AT&T’s revenue from post-paid connections per customer has increased by 3% over the past several years, revenues from data services was up by 47.57% in 2010 as compared to 2008. Something to ponder over.

A more rationale reason for this acquisition is to cover up the shortage of wireless capacity. According to a report released by PwC in 2010 titled, A range of possibilities in a changing wireless landscape, “Demand for new services such as video streaming (which consumes roughly 25 times the network capacity that a voice call does), the importance of service quality, and the migration toward 4G technologies has prompted carriers to continue investing in their infrastructure despite the challenging economy”. Since early 2007, AT&T’s data traffic has grown 80-fold. On the other hand, T-mobile doesn’t have much free spectrum left. There will therefore be some definite improvement in wireless capacity. But it’s hard to see as to how even this move can singlehandedly fulfil the exponential growth in demand. Therefore, to say that this deal will create a monopoly for AT&T is crime.

Many also argue that AT&T is doing what it is supposed to – protect and create shareholder value, in the light of increased competition and increased demand for greater investments in infrastructure. Says Stefan Zehle, CEO of Coleago Consulting, while speaking to B&E from Blackpool (UK), “In US, capital expenditure is increasing with the investment in new spectrum and infrastructure to cater for mobile broadband. Therefore, at this stage of the industry life cycle consolidation is likely to set in, at least at the network level. This is the only way in which an operator like AT&T can maintain shareholder returns.”

So, will the FCC & FTC give their nods? The Herfindahl-Hirschman Index (HHI) – used by antitrust bodies to find out the amount of competition in the market based on which an M&A deal is accepted or rejected – waves the green flag. According to data compiled by comScore in January 2011, AT&T, Verizon, T-mobile and Sprint had market shares of 26.6%, 31.3%, 12.2% and 11.9% respectively. In order to arrive at an HHI for this particular market, we took the squares of each player’s market share and added it up. This led to an HHI of 2249 basis points (bps). By rule, the FCC scrutinises deals in markets with an HHI of 2800 bps, while the FTC sets a standard of 2500 bps for the same. By any means, an HHI of 2249 bps falls way below the benchmarks. Therefore, despite apprehensions from many quarters, this deal will in all probability be passed by regulatory authorities.

But as we can argue forever – such deals are more subject to political prerogative than rational analysis, as New York-based telecom analyst Dan Frommer, tells B&E, “This is the time leading up to an election, and the current administration may be pushed to either reject the deal or insist on harsh terms. These terms may not be suitable to AT&T. I think the deal will ultimately be approved, but there could be some major conditions forced upon AT&T. It largely depends on how much of a political issue it becomes.”

Given the proximity that AT&T enjoys in political circles and also its historical track record of securing approvals for mega deals, it is just a matter of time that AT&T will become the largest telecom carrier in the US. Unless of course, Obama gets better fourth-generation ideas.


Untitled Document
Source : IIPM Editorial, 2012.

An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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Saturday, July 21, 2012

Bad Gaddafi, Pathetic Obama

US has Adopted Selective morality again with The Libya Invasion

Obama’s Nobel Peace Prize drew criticism from a number of quarters, but the symbolism of his presidency and the hope he provided for global peace were said to be his strongest redeeming factors. When allied forces with Obama’s direct involvement waged air strikes to remove Muammar Gaddafi and free Libya recently, it created a strong feeling that the criticisms were not baseless.

The US President during his six-day visit to Latin America warned Gaddafi to leave his throne, as otherwise “the international community” would act with ‘urgency’ to protect anti-government demonstrators. A few hours later, the strikes shrouded the Libyan sky with flames and smoke. Exactly 17 days before, on March 2, 2011, when the Cuban legend Fidel Castro wrote a column for our sister publication, The Sunday Indian, he had predicted the inevitability of war on Libya by NATO forces (the column is reprinted later in this issue).

The shamelessness of Obama’s call to attack Gaddafi emanates from the fact that Libya, under Gaddafi, stands first on the Human Development Index among African nations – similar is Libya’s status in education, health & infrastructure. Gaddafi has reconstructed this nation from scratch. And in an internal war of two sections in a foreign country, who is Obama to comment on who is right and who is wrong? If Obama is so value based, then why hasn’t there been a similar yardstick for Yemen & Bahrain? For that matter, in China? Or in Myanmar?

In July 2010, Obama shook hands quite happily with Gaddafi at the G-8 summit. So what went wrong in one year? Like presidents before him, Obama is pathetically exercising selective morality.

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