pratibimb[jan-feb]2013

PRATIBIMB The Reflection of Management

FINANCE | GENERAL MANAGEMENT | HUMAN RESOURCE | MARKETING | HEALTHCARE | OPERATIONS | SYSTEMS

Volume II, Issue XVII January-February 2013 A Monthly e-Magazine

A Students’ Initiative

BRIC – A Comparative Analysis of Present State of these Econo-mies

By Kunal Ray,Indian Institute of Foreign Trade

Corporate Governance

By Bhushan Mahajan,Faculty of Management Studies

Economic impact of the mega events in Brazil - 2014 FIFA World Cup and 2016 Olympic Games

By Ganesh Sumant Tamboli,SJSOM

Does the 'buy and hold' strategy really work amid the current high volatility in equity markets?

By Chaitanya Gandhi,Jamnalal Bajaj Institute of Management Studies

Human Resource to Human Capital: A Strategic Shift

By Aditya Sharma & Syed Hanzala Rahman,MDI Gurgaon

Impact of analytics in supply chain and adaptability of supporting technological innovation – FMCG Indian perspective

By Arun Kumar S, IIM Indore

Quantitative easing - A blessing or a curse?

By Rini Kothari SIBM

Sustainability and Green Manufacturing

By Gaurav Kumar, NITIE

Innovations for the bottom of the pyramid

By Rithika Baruah, Saurav Agarwal, IIM Kozhikode

Pratibimb | January-February 2013 | 2

T. A. Pai Management Institute (TAPMI) is a premier management institute situated in Manipal

and is well known for its academic rigor & faculty-student interaction. The Institute has been

recently ranked amongst top 1 per cent of B-schools in India & 4th in the South Zone by The

Week Magazine.

Founded by the visionary, Late Shri. T. A. Pai, TAPMI’s mission is to provide much needed

impetus to the task of building professional management capability in the country. In the

process, it has also played a role in strengthening the existing educational and health

infrastructure of Manipal.

TAPMI is committed to excellence in post graduate management education, research and

practice by nurturing and developing global wealth creators and leaders. We shall continually

benchmark ourselves against the best-in-class institutions. We shall foster continuous learning

and reflection, achievement-orientation, creative interdependence, and respect for diversity with

a holistic concern for ethics, environment and society.

T. A. Pai Management Institute

Manipal, Karnataka

About TAPMI

Our Mission


TAPMI’s e-Magazine - is the conglomeration of the various

specializations in MBA (Marketing, Finance, HR, Systems and

Operations). It is primarily intended to provide insights into the

plethora of knowledge that relate to the various departments of

Management and to give an opportunity to the students of TAPMI

and the best brains across country to exhibit their creative cells. The

magazine also strives to bring expert inputs from industries, thereby

bringing the academia and industry together.

Pratibimb the e-Magazine of TAPMI had its first issue in December

2010. The issue comprised of an interview of well known writer Ms.

Rashmi Bansal along with a series of articles by students and industry

experts like MadhuSudan Rao (AVP-Delivery, Mahindra Satyam) & Ed Cohen who is a global leader

and chief learning officer who led Booz Allen Hamilton & Satyam Computer Services to the first

rank globally for learning & development . It also included a hugely successful and engrossing game

for finance geeks called “Beat the Market” to bring out the application based knowledge of

students by providing them the platform where they were expected to predict the stock prices of

two selected stocks on a future date. The magazine is primarily intended for the development of all

around management knowledge by providing unbiased critical insights into the modern

developments.

TAPMI believes that learning is a continuous process and is not limited to the four walls of the

classroom. This viewpoint is further enhanced through Pratibimb wherein students manage and

contribute to create a refreshing learning environment outside the classrooms which eventually

leads to a holistic development process. The magazine provides a competitive platform and

opportunity to the students where they can compete with the best brains in the B-Schools of the

country. The magazine also provides a platform for prominent industry stalwarts to communicate

their views and learning about and from the recent developments from their respective fields of

business which in turn helps to create a collaborative learning base for its readers.

Pratibimb is committed in continuing this initiative by bringing in continuous improvement in the

magazine by including quality articles related to various management issues and eventually creating

a more engaging relationship with its readers by providing them a platform to showcase their

talent.

We invite all the best brains across country to be part of this initiative and help us take this to the

next level.

PRATIBIMB TAPMI’S MONTHLY e-MAGAZINE VOLUME 2, ISSUE XVII JAN-FEB, 2013


It is heartening to see a major surge in research activities in TAPMI in recent times. It manifests two

things: (i) there is an increasing inquisitiveness among the students and faculty to explore , seek and

strive and (ii) there is a sense of achievement through application of research techniques to that

inquisitiveness which ends up in contribution to the domain of management knowledge.

The recent events in research indicate that we are moving in the right direction in our augmenting the

management domain. The quality of the journals where the papers are published and the quality of

the conferences where the papers are presented go on to prove that TAPMI has, at last, arrived in

research space. It is now time to consolidate.

Best wishes,

Dr. R. C. Natarajan

Director’s

Message


Editor’s corner

Sushmit Sinha

Manish Mishra

Abhishek Dubey

Namrata Mahapatra

Divyanshu

Varun Anant

Aditya Bhat

Arun Stephen

Devi Kailas

Kannan Venkat

Rithwik Krishnakumar

Vandna Soni

Prof. Chowdari Prasad

Dean (Branding and Promotions)

Prof. Vinod Madhavan Asst. Prof. , Marketing

Prof. Srivatsa H S

Associate Prof. , Marketing

Prof. Vrishali N Bhat Asst. Prof. , Economics & Finance

Prof. Animesh Bahadur

Asst. Prof. , Human Resources

Prof. Sanjay Choudhari Asst. Prof. , Operations

Prof. Mohan Kumar V Associate Prof. , Systems

Prof. Jaims K. J. Associate Prof. , Marketing

Prof. Sulagna Mukherjee Asst. Prof. , Economics

Editor in Chief

Marketing & Advertising

Design

Creative & Cover Design

Communications

Sub-Editors

Publishing

Faculty Advisors

Dear Readers,

New year, new beginning. It is time to put behind the past and move on to bigger and better things. Though it has been a sad time for us in Team Pratibimb, we realize the value of life and friendship more than ever. And that is what matters at the end of the day.

This time around, Pratibimb has come up with a double digest. You know what that means! More articles and better ones at that!

To give you a sneak peek into this issue: Kunal Ray of IIFT does a comparative analysis of India with respect to the other BRIC countries, namely Brazil, Russia and China in his article "BRIC – A Comparative Analysis of Present State of these Economies".In the article "Corporate Governance",Bhushan Mahajan discusses the need for corporate governance in the present economic conditions.Ganesh Sumant Tamboli of SJMSOM discusses the Economic impact of mega events in Brazil like the 2014 FIFA World Cup and 2016 Olympic Games. "Human Resource to Human Capital: A Strategic Shift" by Aditya Sharma and Syed Hanzala Rahman of MDI,Gurgaon points out the importance of obtaining first mover advantage through Human Capital.We cannot stress enough the relevance of the article "Innovations for the Bottom of the Pyramid (BoP)"by Rithika Baruah and Saurav Agarwal(IIM K) as BoP is turning out to be a segment with a huge potential today.

This issue's Best Article Contest winner is Gaurav Kumar for his article on " Sustainability and Green Manufacturing". It discusses how “green manufacturing” is not a myth but an opportunity for sustaining the production business. On behalf of our entire team, I wish to congratulate him on his wonderful piece.

As always, stay safe, celebrate life and keep reading Pratibimb. Stay updated, and like our page to hear more from us at

http://www.facebook.com/pratibimb.reflecting.management

We would like to thank all faculty members who have provided their valuable feedback to help maintain the standards we have strived to achieve. Also, send in your valuable suggestions or feedback to [email protected]

Enjoy Reading!

~ Devi Kailas


Contents BRIC– A comparative analysis of present state of these economies 7 by Kunal ray, IIFT

Corporate Governance 11 by Bhushan Mahajan, FMS

Does the 'Buy and Hold' strategy really work amid the current high volatility in equity markets? 15 by Chaitanya Gandhi, JBIMS

Economic impact of the mega events in Brazil - 2014 FIFA World Cup and 2016 Olympic Games 18 by Ganesh Sumant Tamboli, SJMSOM Human Resource to Human Capital: A Strategic Shift 21 by Aditya Sharma, Syed Hanzala Rahman, MDI

Impact of analytics in supply chain and adaptability of supporting technological innovation – FMCG Indian perspective 25 by Arun Kumar S, IIM Indore

Quantitative easing - A blessing or a curse? 29 by Rini Kothari, SIBM

Sustainability and Green Manufacturing 33 by Gaurav Kumar, NITIE

Innovations for the bottom of the pyramid 38 by Rithika Baruah,Saurav Agarwal, IIM Kozhikode


BRIC – A Comparative Analysis of Present State of these Economies

Kunal Ray, IIFT

For a country, achieving consistent growth is no mean feat. And for a reform deprived

nation like India, the economic stagflation being faced currently is just a manifestation of

the skewed development path that has been followed over the years and the result of

lack of any major economic reforms post 1991, which paved the way for whatever

growth that has been observed of late. However, the gains derived from those measures

seem now to be drying up and this merits a detailed analysis of the country’s present

economic performance vis a vis that of its peers which will probably lead to a better

understanding of the desired direction that the Indian economy should take in the near

future.

The mandate of this article is to do a comparative analysis of India with respect to the

other BRIC countries, namely Brazil, Russia and China. This makes perfect sense as well,

since; these countries are similarly positioned in the world, each of them aspiring greater

roles in the World Economy and each of them facing similar problems at a macro level.

Economic Growth and Wealth Distribution: One of the most basic parameters which

help to judge the economic performance of a nation is its GDP, which, simply put, is a

measure of the market value for all recognized goods and services within a country and

GDP per capita, the latter, being widely considered the foremost indicator of the

standard of living of the citizens of a country. A comparison of the BRIC countries based

on these parameters showcases that although India’s GDP growth rate has been quite

impressive on an year on year basis, however, its GDP per capita lags far behind that of

other BRIC nations and also in terms of Purchasing Power Parity (PPP). This basically

leads us to the realization that the economic base on which our GDP growth rate is

calculated is smaller than other BRIC nations and also that the economic gains when

divided by the large population of this country mitigate our achievements.

Fig 1: GDP growth rate year on year comparison of BRIC nations


Fig 2: GDP per Capita comparison of BRIC nations

Hence, with respect to India, it appears to be a classic case

of too little, too late. Whereas as shown above, China

started from almost the same level as India did on a GDP

per capita scale, its growth has been nothing short of

stunning despite a larger population base when compared

to India.

Sector Wise Contribution to Economy: The importance of a

sector wise analysis of a country’s economy cannot be over

– emphasized. It is important for any nation aspiring greater

economic freedom to have a healthy mix of Agriculture,

Industry and Services contributing to its GDP. Moreover,

history suggests that for a developing nation to move on to

the next league, it must transcend from Agriculture to

Industry and then finally to Services. India appears to have

bypassed this, having jumped directly to Services from

Agriculture; which is the cause for much of the troubles

being faced by the country. The chart below shows the

sector wise contribution to the GDP for all the BRIC nations.

Figure 3: Average Sector Wise Contribution to GDP (2005-

2010)

Attempting to understand the above findings, it may be

concluded that the two top performing BRIC countries,

namely Russia and China have a greater focus on Industry

than the other two. Further, as mentioned before, India,

which was primarily an agricultural economy till a few

decades back has hopped towards being a more services

driven one at present, riding on the back of the IT and

Telecom boom. However, something which is not apparent

from the description above is that the 17.6% contribution to

India’s GDP by Agriculture employs nearly half the entire

workforce; thus implying that Indian agriculture is yet to

grow to the levels of its western counterparts where there

is more reliance on machinery in farming activities.

Human Resource Development: Another parameter on

which the economic performance of countries could be

compared is the Human Development Index generated

yearly by the UNDP. It focuses on people and not just the

financial performances. Among other things, it addresses

the primary issue of how economic growth translates or

fails to translate into human development. The graph below

shows a comparison of India with all other BRIC nations

with respect to Human Development Index.

Fig 4: Human Development Index Comparison of BRIC

Nations

It does not require much insight to see that although there

has been a slight improvement in India’s Human

Development indices over the years, when compared to the

other BRIC nations, India lags far behind; and at this rate,

and we will be playing catch up for decades to come.

This should not really come as a surprise, since two primary

measures which lead to the increase in human

development in a country namely health and education; are

neglected to a large extent in India. As per the latest

available UNDP report on public health expenditure across

all BRIC countries, India spends the least as a percentage of

GDP. While for us, the expenditure stands at a meager

1.3%; for other BRIC countries combined with similarly

placed South Africa, the average expenditure on health as a


percentage of GDP comes out to be approximately almost

double at 2.4%.

As far as education is concerned, according to the education

indices, derived from the same UNDP Human Development

report, India stands last with an education index pegged at

0.45 compared to 0.66 for Brazil, 0.78 for Russia and 0.62

for China. All these factors contribute to the abysmal

Human Development Index that is attributed to India. It is

often said that for a country, just like for any organization,

its people are the biggest resources that it has and if you

don’t pay much heed to people development, it is highly

unlikely that there could be any sustainable growth. The sad

part is that the other nations seem to have understood it,

but not us.

Investor Confidence: This is another factor which may be

used to compare the economic performances of the BRIC

nations. The confidence that investors show is a direct

indication of how they perceive the economy of a country

to be. The parameter being compared here is the Foreign

Direct Investment as a percentage of a country’s GDP. This

gives a mixed picture as far as India is concerned. Between

2005 and 2008, India observed an unbroken streak of

increase in FDI (read increased investor confidence).

However, from 2008 onwards, it seems that the country is

not being considered as a favored investment destination

any more. This may be due to a variety of reasons, a

primary component of which could be policy paralysis

which seems to have gripped to nation. Reduced investor

confidence is also reflected in India’s reduced rating as an

investment destination as per the latest Standard and

Poor’s report, which is unlikely to help the cause any

further.

The above statements are corroborated by World Bank

data, which shows a reduction in FDI inflow to India of late,

which is of course, a manifestation of reduced investor

confidence. Compare this with both Russia and China,

which enjoys high levels of investor confidence, and the

picture becomes clearer.

Contribution to World Economy: The contribution of a

nation to world economy in terms of export and import of

goods and services is a strong measure of its progress. As a

thumb rule, every country should aspire to enhance its net

exports and reduce its imports in order to create more jobs,

reduce its fiscal deficit and basically, move up the ladder.

But surprisingly enough, on this aspect as well, India fares

poorly. Historically, India has been a net importer of goods

and services and its net imports as a percentage of GDP far

outrank its net exports on the same scale. Not only has its

imports been more than its exports, but the difference has

continuously been increasing year after year as the graph

below clearly illustrates.

Fig 5: Foreign Direct Investment as % of GDP


Fig 6: Yearly Data of Net Imports and Exports for BRIC

Countries

On the contrary, Russia and China have been net exporters,

which accounts for their enhanced status in the world. Even

Brazil has been a net exporter, barring a few instances

when its imports became almost equal to its exports.

Conclusion: The analysis above clearly shows in ways more

than one, where is the Indian economy positioned with

respect to the other BRIC nations. Although the nation has

been progressing on almost all parameters which have been

mentioned above, but the pace has not been very

satisfactory. When compared to new economic giants like

China, India seems to have failed on a number of counts.

Even though it did manage to capitalize to a large extent, on

the slew of economic reforms ushered in 1991, the fact

remains that since then, a certain degree of complacency

seems to have crept in, as far as policy making is concerned;

which is dragging the country behind and preventing its free

flight in a new world order.

References:

http://en.wikipedia.org/wiki/Gross_domestic_product

http://theglobaleconomy.com

Source: World Development Indicators & Global

Development Finance – September 2011.

Economic Survey 2009-2010; Ministry of Finance, Govt. of

India.

http://hdr.undp.org/en/reports/global/hdr1990/ on 8th

December 2012.

The Hindu Business Line on 5th December 2012.

http://www.thehindubusinessline.com/industry-and-

economy/article3317902.ece?

homepage=true&ref=wl_home

UNDP Human Development Report 2011.

S&P lowers India’s outlook to negative, The Economic

Times on 7th December 2012. Edition dated April 25, 2012

World Development Indicators (WDI) and Global

Development Finance (GDF), April 2012. Source: The


Corporate Governance

Bhushan Mahajan, Faculty of Management Studies

Corporate governance includes the relationship between shareholders, creditors, and

corporations; between financial markets, institutions, and corporations; and between

employees and corporations. Corporate governance also encompasses the issue of

corporate social responsibility, including such aspects as the firm’s dealings affecting

culture and the environment and the sustainability of firms’ operations

The subject of corporate governance leapt to global business limelight from relative

obscurity after a string of collapses of high profile companies. Enron, the Houston, Texas

based energy giant, and WorldCom, the telecom behemoth, shocked the business world

with both the scale and age of their unethical and illegal operations. They seemed to

indicate only the tip of a dangerous iceberg. It’s worse when it happens on your own turf

as in the case of Satyam.

Effective corporate governance mechanisms ensure better resource allocation and

management raising the return to capital. The return on assets (ROA) is about twice as

high in the countries with the highest level of equity rights protection as in countries with

the lowest protection.

Good corporate governance can significantly reduce the risk of nation-wide financial

crises. There is a strong inverse relationship between the quality of corporate governance

and currency depreciation.

Need for corporate governance arises due to separation of management from the

ownership.

Corporate governance concept emerged in India after the second half of 1996 due to

economic liberalization and deregulation of industry and business. With the changing

times, there was also need for greater accountability of companies to their shareholders

and customers. The report of Cadbury Committee on the financial aspects of corporate

Governance in the U.K. has given rise to the debate of Corporate Governance in India. For

a firm success, it needs to concentrate on both economical and social aspect. It needs to

be fair with producers, shareholders, customers etc. It has various responsibilities towards

employees, customers, communities and at last towards governance and it needs to serve

its responsibilities at the best at all aspects.

Poor transparency and corporate governance norms are believed to be the key reasons

behind the Asian Crisis of 1997. Such financial crises have massive economic and social

costs and can set a country several years back in its path to development

Mainly we will deal with the perspectives of corporate governance from three points of

view:

1. Shareholders (Capital Market) – Control perspective

2. Organization (Management) – Control perspective

3. Stakeholders - Control perspective


Shareholders: As providers of a risk capital, they have final

control on resource allocation decisions.

Organization: The main purpose is to control i.e. through

skills, intelligence, innovation, ideas, professionalism etc.

Therefore, here in this perspective, resource allocation

decision should rest with them.

Stakeholders: here, it says that for long term business, only

shareholders value maximization should not be seen as sole

goal but it should be for well being of all groups with stake

of long run of business and it should be goal of corporate

governance.

ISSUES IN CORPORATE GOVERNANCE

Regulatory Response: Securities Law

In India, the Securities and Exchange Board of India (SEBI)

was set up as a statutory authority in 1992, and has taken a

number of initiatives in the area of investor protection.

1. Information disclosure

The company law itself mandates certain standards of

information disclosure both in prospectuses and in annual

accounts. SEBI has added substantially to these

requirements in an attempt to make these documents more

meaningful.

2. Promoters’ contribution and lock in

Another aspect of the SEBI regulations is that in most public

issues, the promoters (typically the dominant shareholders)

are required to take a minimum stake of about 20% in the

capital of the company and to retain these shares for a

minimum lock-in period of about three years

Regulatory Response: Company Law

1. Protection of minority shareholders

Company law provides that a company can be wound up if

the Court is of the opinion that it is just and equitable to do

so.

2.Special majority

Another safeguard in the company law is the requirement

that certain major decisions have to be approved by a

special majority of 75% or 90% of the shareholders by value

3.Information disclosure & audit

Company law provides for regular accounting information

to be supplied to the shareholders along with a report by

the auditors

CORPORATE GOVERNANCE’S ROLE IN GROWTH &

DEVELOPMENT

Corporate Governance is largely about checks and balances.

Some of the key advantages are as mentioned below:

• Increased access to external financing by firms can lead, in

turn, to larger investment, higher growth, and greater

employment creation.

• Lowering of the cost of capital and associated higher firm

valuation makes more investments attractive to investors,

also leading to growth and more employment.

• Better operational performance through better allocation

of resources and better management creates wealth more

generally.

• Good corporate governance can be associated with a

reduced risk of financial crises, which is particularly

important given that financial crises can have large

economic and social costs.

• Good corporate governance can mean generally better

relationships with all stakeholders, which helps improve

social and labour relationships, help address such issues as

environmental protection, and can help further reduce

poverty and inequality.

Better functioning of financial markets and greater cross-

border investments

More generally, poor corporate governance can affect the

functioning of a country’s financial markets & the volume of

cross-border financing. For instance, weaker corporate

governance can increase financial volatility. When

information is poorly protected — due to a lack of

transparency and insiders having an edge on firms’ activities

and outlook — investors and analysts may have neither the

ability to analyze firms (because it is so costly to collect

information, or the information is difficult to collect

regardless of costs)

India ranks 7th in Corporate Governance in Asia-Pacific-

CLSA Corporate Governance Report 2012

The CLSA CG report which analysed as many as 864 listed

companies across Asia-Pacific markets, said that Infosys was

the only Indian Company that was featured in the top 20

Corporate Governance large caps. Investors have faced

issues ranging from relatively minor corporate

transgressions to growing concerns about the


reliability of financial statements and at extreme fraud. Moreover, there were just five companies which got featured in the

top 50 league table. Besides, Infosys the other four include HUL, Wipro, Titan Industries and Yes Bank

Impact of Corporate Governance on the Stock Prices

The quality of corporate governance can also affect firms’ behaviour in times of economic shocks and actually contribute to

the occurrence of financial distress, with economy wide impact. Less Volatile Stock prices and reduced risk of financial crises

are a result of good corporate governance

During the East Asian financial crisis, cumulative stock returns of firms in which managers had high levels of control rights,

but little direct ownership, were 10 to 20 percentage points lower than those of other firms. This shows the importance

that corporate governance can have in determining individual firms’ behaviour, in particular the insiders’ incentives to

expropriate minority shareholders during times of distress.

Over the last decade, many researchers have linked firms’ corporate governance practices to their market valuation and

performance. Typically, such studies score firms on their corporate governance practices, using indexes based on

shareholder rights, board structure, board procedures, disclosure, and ownership parity. Corporate governance has

significantly affected the share price of these listed companies and hence has been a very important predictor for their

share price value. Higher Website Disclosure, Independent Board and diversified shareholding pattern are Characteristic of

Good Corporate governance.

Let us consider the highly valued companies in the Indian Private Banking sector.

The Website disclosures and their stock price movement are as depicted below

Shareholding Pattern

More distributive the ownership better it is for FII’s to invest in the company

Disclosures

Company Promoter % FII% DII% Corporate bodies Public & other

HDFC Bank 23.15 30.68 10.5 8.73 26.94

ICICI Bank - 35.81 26.75 3.97 33.47

Kotak Mahindra 45.32 28.24 4.66 3.76 18.02

ING Vysya bank 43.77 25.24 13.69 5.43 11.87

Axis Bank 37.38 32.94 13.4 1.28 15

Company Annual

report Qtrly re-

port Investor

PPT CC Corp

Gov Call tran-

scripts Disclo-

sure HDFC Bank Y Y Y Y Y Y 100%

ICICI Bank Y Y Y Y N Y 85.71%

Kotak Mahin-

dra Y Y N Y Y Y 85.71%

INGVysya Y Y Y N N Y 71.43%

Axis Bank Y Y Y Y Y N 85.71%


Board of Directors

Some Logical Conclusions

High valued banks have excellent website disclosures as compared to medium valued banks

HDFC has a higher number of disclosures which is one of the hygiene factors for the company

Quality of Directors is a key point of difference. HDFC, ICICI and Kotak Mahindra have higher proportion of directors

attending their Board meetings and higher proportion in management Positions in other banks

Higher and better quality disclosures have always had a positive effect on the stock value of the company as shown in the

chart above.

Future

Corporate governance from the futuristic point of view has great role to play. The corporate bodies in their corporate have

much futuristic approach. They have vision for their company, on which they work for the future success. They take risk and

adopt innovative ideas, have futuristic goals, motto, and future objectives to achieve.

With increase in interdependence and free trade among countries and citizens across the globe, internationally accepted

corporate governance standards are of paramount importance for Indian Companies seeking to distinguish themselves in

global footprint. The companies should always keep improving, enhancing and upgrading themselves by bringing more

reliable integrated product and service quality. They should be more transparent in their conduct.

Corporate governance should also have approach of holistic view, value based governance, should be committed towards

corporate social upliftment, social responsibility and environment protection.

References:

http://profit.ndtv.com/news/economy/article-india-ranks-7th-in-corporate-governance-in-asia-pacific-report-311208

http://www.gcgf.org/wps/wcm/connect/Topics_Ext_Content/IFC_External_Corporate_Site/

NSE, BSE India Website

Cadbury, A., Chairman, (1992), Report on the Financial Aspects of Corporate Governance

Company Directors Independ-

ent Independent Pro-

portion Mean attendance in Board

meeting HDFC Bank 10 6 60% 72.86%

ICICI Bank 12 7 58% 73.15%

Kotak Mahin-

dra 12 8 67% 71.88%

ING Vysya

bank 11 4 36% 66.67%

Axis Bank 14 8 57% 65%

http://profit.ndtv.com/news/economy/article-india-ranks-7th-in-corporate-governance-in-asia-pacific-report-311208

http://www.gcgf.org/wps/wcm/connect/Topics_Ext_Content/IFC_External_Corporate_Site/Global+Corporate+Governance+Forum/


Does the 'Buy and Hold' strategy really work

amid the current high volatility in equity

markets? Chaitanya Gandhi, JBIMS

“Higher the Risk, Higher the Return” has been the motto of all the business across the globe

since time immemorial. The Equity Markets have been the personified version of this motto.

Various strategies have been developed by the most elite and erudite of the investors to

succeed in this high risk avenue. The most popular and well accepted is the Buy and Hold

strategy or the Long-term Investment Strategy.

Choosing a good company for the portfolio will make a difference to the profits but holding the

same for decades shall make the profits mammoth sized as compared to trading it every day.

Even the uncrowned emperor of stock markets, Warren Buffett relies on a Buy and Hold

strategy for investments and it can be said that as an investment strategy, it’s one of the most

optimum options one has for increasing the wealth over the long term, in almost every

situation. Warren Buffett is listed on the Forbes 2012 World’s Billionaire List as the third-richest

man in the entire world.

However, as per John Melloy in his blog at CNBC, the Buy and Hold Strategy has taken a fair

amount of beating in the recent times. As per the blog, it is the mainly the high frequency

traders that make the money in the world. As per the analyst Alan Newman’s Crosscurrents

newsletter, the average holding period of stocks has fallen from four years in the period 1926 –

1999 to 3.2 months now and the same for S&P 500 SPDR (SPY), the ETF which tracks the

benchmark for U.S. stocks, is less than five days!

‘Given recent average volume, the SPY trades its entire capitalization and then some each and

every week,’ wrote the analyst. ‘Does anyone really wish to argue where valuation might enter

the picture in this scenario? Value does not matter in the slightest.’

This dissertation aims to have an expression on whether the annulment of the “Buy and Hold”

Strategy has really taken place? It is done vide:

1. Understanding the Buy and Hold Strategy, its advantages and disadvantages.

2. Analysing the top indices across the world for the last ten years

3. Concluding on the invalidity of the long term investment strategy in such volatile times or

otherwise

What is Buy and Hold? Investment Strategies are the various rules, behaviours or procedures designed and used by

various investors for stock selection and forming a portfolio. The investors design strategies as

per their risk appetite and try to achieve a risk-return trade-off.

Buy and Hold is a long-term investment strategy based on the view that in the long run,

financial markets give a good rate of return irrespective of periods of volatility or decline. Also,

it advocates that short-term market timing, i.e. the phenomenon that one can enter the market

on the lows and exit on the highs, doesn’t work. Moreover, attempting market timing gives

adverse results, at least for small-sized or unsophisticated investors. Hence, it is far better for

them to follow the Buy and Hold Strategy.


The theory behind the Buy and Hold strategy is ‘It's

impossible to consistently achieve above average returns,

on a risk-adjusted basis, according to the efficient market

hypothesis (EMH). Investors have access to information

that will fairly value a security at all times. Therefore, it is

pointless to make decisions that might result in the active

trading of a security.’ Hence the disciples of Buy and Hold

find no reason to trade in stocks on a day-to-day basis. The

only area of focus is that the long term trend in the market

should be a positive. The antithesis of buy-and-hold is the

concept of intra-day trading, in which money can be made

in the short-term taking advantage of greater volatility.

Choosing good companies makes a difference to your

profits, but holding stock for decades will offer better

results on an average rather than attempting to day trade

without in-depth knowledge and analysis of the market.

There are several advantages of Buy and Hold Strategy:

Easily Comprehendible and Implementable

Supported by Investment Theory

Reinforces the ‘Minimum Emotions – Maximum

Discipline’ approach

Outperformance of the Passive Investing over Active

Investing

Cost-Effective as compared to Active Trading

The Disadvantages of Buy and Hold Strategy:

No upper limit to losses

Test of Risk Appetite – Investors may lose if they

don’t have sufficient risk appetite

Buy and Hold Approach may not provide Maximum

Possible Returns as much as in Minute to Minute

approach

Performance of various indices across world

The best way to take a call on the effectiveness of the

strategy is to look at the historical results. For this, a sample

of the top ten indices of the world is taken into

consideration. Following are the performances of the

various top indices of the world. As can be seen from the

below chart, most of the top indices have shown a low

return over the ten year period with spikes in between. In

fact the Tokyo Index - Nikkei 225 has given a negative

return of 17%, which means that a person invested in Nikkei

keeping a Buy and Hold Strategy in mind for ten years

would have lost 17% of his investment instead of gaining

anything.

The mean return (arithmetic mean) and standard deviation

of the yearly returns achieved by these indices are shows in

the adjacent table. The mean returns of the samples taken

into consideration show that the average yearly return is

below 10% in most of the cases. Also, the high rate of

standard deviation


below 10% in most of the cases. Also, the high rate of

standard deviation shows that there is a lot of volatility in

the market and this makes the investments high on risk

factor as well.

The following table enlists the five-year and ten-year re-

turns of the indices. As can be seen from the above table,

there is a disparity in the performance of the indices. Some

of the indices have given exceptional returns over the years

as high as 534% over ten years, whereas others have others

have given a return of around 20% for the same period. The

negative returns in the five-year period 2007-Nov, 2012 has

offset the gains earned in the five-year period 2001-2006

due to which the ten-year returns are not very impressive

(other than BSE 30 Index and Mexican IPC Index). To gain a

better understanding of the long-term returns, the year on

year returns for the period 2001 to November, 2012

(current) need to be analysed. The above table shows that

the returns on various indices of the world have been more

or less on a positive trend; the only exceptions are the mas-

sive fall in the years 2002, 2008 and 2011.

Conclusion

As can be inferred from the above chart and tables, there is

a consistent amount of returns offered by indices over a

period of time which is subject to certain steep falls owing

to occurrence of certain big ticket events. As can be seen,

there has been a fall in 2002 (Dot-Com Bubble Burst), 2008

(Sub-Prime Crisis) and 2011 (Curb of Quantitative Easing).

Barring these years, the indices have earned a good return

of investment considerably higher than the gilt-edged in-

vestments.

This proves that the Buy and Hold strategy still holds true

provided it’s tweaked a little. One needs to decide the peri-

od for which the investments need to be held as the ‘Long’

in the long-term investments is not a thumb rule figure. For

this it is suggested to introduce periodic review of invest-

ments along with the strategy. The review need not be on a

daily basis which makes it as good as trading but over a

longer period sufficient to detect any event which is

affecting or may affect the investment in a hugely adverse

way.

The periodicity of review is basically dependant on the risk

of the portfolio. Higher the risk, more often should it be

reviewed. There are two types of risks, namely the system-

atic risk and the unsystematic risks. An unsystematic risk is a

company specific risk and it is inherent in every different

investment at a varying level. It is a company specific risk

and hence can be minimised using proper diversification,

whereas the systematic risks cannot be reduced in the same

way. The systematic risks are the ones external to the com-

pany like inflation, high unemployment, political turmoil,

wars, natural disasters, and so on. The systematic risks are

the events which can cause excessive volatility in the mar-

kets and hence the investor should keep a keen watch on

them. Systematic risks are measured using the Beta Factor

(CAPM Theory) for a particular investment. This factor is

available in various investment journals. Portfolio beta must

be used in order to determine the periodicity of monitoring

the investment while following this strategy. This will en-

sure that the investor assesses the investment as and when

required and take a sound strategic decision when the time

demands.

References

Capital Market Blogs by Mr. John Melloy at CNBC, Crosscurrent Newsletter by Mr. Alan New-

man on the volatility affecting Buy and Hold Strategy

Efficient Market Hypothesis developed by Professor Eugene Fama

Data for various indices has been obtained from quotes.stocknod.com


Economic impact of the mega events in Brazil - 2014 FIFA World Cup and 2016

Olympic Games

Ganesh Sumant Tamboli, SJMSOM

Introduction

The term BRIC was coined by Jim O’Neill in his paper “Building Better Global Economic BRICs” published in 2001. The term is an acronym that refers to Brazil, Russia, India and China and is widely used to symbolize the growing shift of economic power from the G7 economies. However, though the growth of these countries has been outstanding during the past decade, the recession arising out of the 2008 crash and the global economic downturn due to the Euro-zone crisis have cast some doubts on the ability of the BRICs to maintain the growth rate. Much has changed since the housing bubble which led to a global recession in 2008. Russia has been engulfed in corruption and is unable to find out a solution to break the business-politics nexus. India with its coalition government is finding it hard to balance the power at centre due to multiple scams that are being exposed. China is faltering and the falling growth rate casts doubt on its ability to handle the present downturn.

Brazil on the other hand has been steady through this tough time. Unemployment is low, wages are rising and the foreign direct investment is pouring in. Many economists are of the view that Brazil should be able to grow at 3.5% through this decade. It is one of the few countries where democracy has brought political continuity and economic stability. But, not all is hunky-dory and Brazil has its own set of challenges. The growth witnessed during the past two decades was a result of opening up the economy in 1990 and a boost in trade caused due to China’s demand of commodities. However, the Chinese economy is slowing down and this has resulted in a negative impact on trade. The cost of doing business is very high and the complex tax structure acts as a deterrent to MNCs.

Amidst all this, there are two important events that will happen in Brazil. It will host the FIFA world cup in 2014 and Olympics in 2016. Only Mexico, Germany and U.S. had such an opportunity to host two mega events back-to-back. While these events will present organizational and logistics challenges, they will also offer a unique opportunity to showcase a modern and globally integrated Brazil. The events will have a deep impact on the financial and economic climate in Brazil. The financial effect refers to the budgetary balance of the host city’s organizing committee and whether the financial costs of hosting the Games can be met by the revenues directly generated from the Games events. The economic impacts will include the overall effect on the general economy arising out of the increased tourism and improved infrastructure.

Economic Benefits

The increased tourism does result in increased revenue for the host nation. But, this can be termed as short-term effect and no country would want to invest in billions to promote tourism alone. The more important effect is the increase in exports. Hosting a mega event can be linked to trade liberalization. In 1955, when Rome won the bid to host the 1960 Olympics, it started to move towards currency convertibility, joined the United Nations and started negotiations on treaty of Rome which led to formation of European Economic Community (EEC). Japan entered in International Monetary Fund (IMF) in 1964 when it hosted the Olympics. Spain joined EEC in 1986 when it won the bid for 1992 Games. Mexico hosted the FIFA World Cup in 1986 which coincides with its trade liberalization and entry into the General Agreement on Tariff and Trade (GATT). Thus, it appears that hosting a mega event leads to a boost in infrastructure that amounts to trade liberalization.


The economic impact caused by such mega events begins from the time the nation wins the bid to host and extends to a few years after the event. This impact can be classified into three groups:

Pre-Games impact: This includes investment and other preparatory activities and tourism

Games impact: With tourism, the infrastructure gets a boost. Temporary jobs are created and revenue is earned through tickets, etc.

Post-Games impact: Urban regeneration and international reputation are some of the long term effects of hosting a mega event

Since hosting a mega event entails huge costs, financing the event forms the most critical challenge to the host nation. How does a nation finance such a huge event? How can it ensure to recover these costs? Till the Games of 1976 Montreal, Olympics were sponsored through public funds. But things changed due to 1976 Games. This event was financed through public funds and a considerable amount was spent on improving infrastructure. However, a considerable financial debt was declared from the event. The Montreal Games showed that hosting the event on public funds alone was not a good idea. As a result, in 1984, when the Games were to be held in Los Angeles, the citizens voted against the use of public funds. This was the first time that an Olympic event was held on the sponsorship and later led to the commercialization of the Games. Though the Los Angeles Games resulted in budgetary surplus, the expenditure on infrastructure was quite low. Thus, the economic benefits associated with the Games were not as expected. The Games of Seoul 1988 and Barcelona 1992 proved that a nation can have huge expenditure on the infrastructure and yet recover the costs. By this time, people started laying more importance on the economic benefits rather than concentrating only on the financial viability.

To consider the economic effects of hosting a mega event, it would not be appropriate to study these effects on the developed nations. Instead the effects on similar countries which include China (Olympic 2008), South Africa (FIFA World Cup 2010) and India (2010 Commonwealth Games) would present a better picture. The effects of these events are discussed below:

Beijing 2008 Olympics

China hosted the Olympic Games in Beijing from August 8 to 24, 2008. Beijing was selected as the host city for the 2008 Olympics on July 13, 2001. The games had a profound impact on the GDP of China. The growth rate of GDP in 1999 was 6.2%. In 2001, which was the beginning year of holding the Games, GDP rose to 10.5%. Before the Games the average growth rate was 8.4% while that from 2001 to 2006 was 13.3%. The growth rate of GDP over the years is given in Table1

The averaged growth rate of GDP in the Pre-Games, Games Year and Post-Games was 13.4%, 13.8% and 13.9% respectively. The growth in GDP per capita in China increased from 5.3% in 1999 to 13.8% in 2005. The growth rate of investment in China increased from 10.2% to 23.7% in 2006. Huge amount of employment was created owing to the increased amount of investment. The direct employment that was created due to the Games is 2,788 thousand workers. Table2 shows the employment figures of past Games

The profit that China earned from hosting this mega event is 16 million dollars. However, this figure should not be considered as the actual benefit from hosting the event. This figure gives only the difference between revenue in the form of ticket sales, broadcasting rights, etc and expenditure on infrastructure. The long term benefits arising out of the improved infrastructure and international reputation are not evident from this figure. To conclude, the Olympic Games helped China show its ability to manage a mega event and opened up new avenues for growth and investments.

South Africa, 2010, FIFA World Cup

The FIFA World Cup took place in South Africa from 11 June to 11 July 2010. This was the first time that a World Cup was being hosted by an African country. The tourism spend of the event is estimated to have boosted the economy by USD 475 million. However, the event posted a loss of USD 6.6 billion to the national budget. Thus, a question that needs to be asked is whether the economic benefits justify this immense loss.

The total number of tourists that visited during the event

1999 2000 2001 2002 2003 2004 2005 2006

Growth rate of GDP (%)

6.2

10.6

10.5

9.7

12.8

17.7

14.5

15.1

Source: National Bureau of Statistics of China, China Statistical Year book 2006

Table 1: Growth rate of GDP of China


was 309,554. It is likely that the tourism in South Africa will get a boost as 90% of the visitors interviewed in a survey may visit again. Though the event boosted the economic growth by 0.5%, much of it was caused by the Government expenditure. Thus, the event led to redirection of national wealth and not creation of wealth. Employment was also impacted by the event. Almost 695,000 jobs were created in the year 2009 and most of them sustained through 2010. However, not many of these jobs were permanent and hence the surge in employment did not last long after the event.

Though the event was successfully organized, the huge loss has raised many questions. Given the loss, was it practical to organize such an event in a developing country like South Africa? How much should the economic benefits be to offset this loss? Was this loss created due to operational and financial inefficiencies? Only time will tell if the economic benefits are as expected.

India 2010 Common Wealth Games

The Common Wealth Games were held in Delhi from 3 to 14 October, 2010. India is the third developing country to host this event after Jamaica in 1966 and Malaysia in 1998. Like other mega events, this event too had an impact on the social and economic dynamics of the nation.

The Organising Committee claimed that the overall economic contribution to India’s GDP is USD 4.94 billion during a period of four years (2009-2012). It is estimated that close to 2.47 million job opportunities were created during this period. A profound impact was seen on the economy of Delhi which witnessed a high growth rate of around 9% during this period. The Government of India took additional efforts to promote tourism by liberalisation of visa-on arrival and permitting 100% FDI in tourism. One of the major bottlenecks for this event was the accuracy of the revenue projection. The projected revenue in July 2008 was USD 410 million. However, out of the total committed revenue of USD 157 million by Organising Committee, only USD 101.5 million was the net revenue generated. After deducting the revenue generation cost, the total revenue amounted to only USD 40 million. The event was also scarred by the massive corruption which resulted in the arrest of a senior politician.

The long term benefits of hosting this event on India and particularly Delhi which hosted this event remains to be seen.

Conclusion

The global economic climate is gloomy due to the Euro-zone crisis and a slow U.S. recovery. The investment in the developing countries has dried up and countries are trying to woo the investors by going an extra mile. These events will serve as a platform to promote Brazil. An efficient execution of events, check on financial viability of investments, judicious use of public resources and public policy reforms will help to boost trade and tourism. Thereafter, it will depend on how Brazil uses this opportunity and creates a sustainable growth and development model.

References

Konrad Adenauer Stiftung, Sustainable Mega events in

developing countries, 2011

Standard & Poor, “Brazil Gears up for the Games”,

CreditWeek, July 25, 2011

PriceWaterCoopers, “The economic impact of Olympic

Games”, June 2004

Andrew K Rose and Mark M Spiegel, “The Olympic Trade

Effect”, Finance & Development, March 2010

Preuss, H. (2004), “The economics of staging the Olympics:

a comparison of the Games 1972-2008”, Edward Elgar: London.

Table 2: Increased Employment due to Olympic Games

Los Angeles 1984

Seoul 1988

Barcelona 1992

Atlanta 1996

Sydney 2000

Beijing 2008

Increased Employ-ment (in thou-sands)

25

336

120

90

1577

2788

Source: National Employment Bureau of China, China Statistics year book 2010


Human Resource to Human Capital: A

Strategic Shift

Aditya Sharma, Syed Hanzala Rahman, MDI

When we study the Clark’s sector model of the United States, we see how the industry workforce

has evolved from 1850 to 2010. In the civil war era, the primary sector employed the highest number

of people (around 65%) while the count tertiary sector workforce (around 18%) was quite less in

comparison. Through the years, due to the results of industrial revolution, technological and social

advancements, the statistics have gone through a reverse trend. The primary sector now contributes

less than 5% and tertiary workforce accounts for around 70%. Same is the case with many other

nations around the globe.

Basically, the nature of workforce has changed to a great extent and gradually, the global economy

needed people to manage the workforce in order to increase productivity, reduce workplace

deviance, etc. At this point of time, a new field of work or function emerged. We know it as the

Human Resource Department. When we talk about Human Resource, as a field or to be more

appropriate, a function, the first question to be answered is the evolution of HR. At first it was

considered to be mundane enough to handle the company records pertaining to leave, working

hours, production, etc. Later came the compliance stage (starting in South Africa) when the basic

employment conditions and legislations became important. This was followed by service delivery and

management partner stage which later evolved into the strategic business partner role of HR. The

present buzz is around the measurement and development of impact of Human Resources. This is


where Human Capital comes into picture. So a clear

differentiation between Human Resource and Human

Capital needs to be established.

“Human Capital and Human Resources are quite often

interchangeably used; however, in reality they are very

different. While Human Resource is a construct, Human

Capital is more of a concept; a concept that has gained huge

importance in recent times. ”

Human Resource is the collective set of individuals who

make up the workforce of any organization. It includes

people right from the Security Guard that a company

employs, to the CEO of that company. It comprises of a

number of important functions like recruitment,

compensation benefits, training and development, etc.

These days, HR has become an important player in the

business strategy formulation and is seen as the strategic

business partner. Human Capital, on the other hand, is a

collection of skills, knowledge, and experience possessed by

an individual or a population. So, when an organization

invests in a resource, it looks for the return on its

investment and Human Capital and its management are the

way out. Human Capital rests on the belief that not all

employees are inherently same, and if they are invested

upon, their skill set and abilities will increase, in turn

increasing the Economic Value of the company. So, placing

the right person, on the right job, at the right time is very

important.

Now, if we look at any company, the first thing that needs

mention is the fact that the number of employees it can

acquire is limited, mainly because of two reasons:

1. The first reason is the limiting nature of the financial

resources of the Company. The costs include salaries, hiring

and other related costs, etc.

2. Secondly, the lack of easy unavailability of skilled and unskilled Personnel. This makes Human Resource a very limited property.

However, Human Capital is an infinite resource. The same

Human Resource could be transformed into a far effective

workforce, if trained on a specific set of skills as per the

requirements of the job; hence adding more value to the

Organization. So what we witness is an increase in the

Human Capital of the Organization.


There have been reports of decreasing employability of

students who are passing out as MBA grads, or as Tech

Grads. In a big development that triggered a debate in

India, Infosys chairman emeritus N R Narayana Murthy said

that at least 80% IIT students lack quality and skills that are

desired from them. Another study reports that only one-

fifth of MBA Graduates are really employable. What that

leaves us with is a large pool of people, who although are a

resource for the country, but are definitely not ready with

the required Human Capital. This makes it extremely

difficult for companies, as they face a challenging task of

training people and making them work-fit: the scarcity of

talent and skills.

Let us now look at an Industry which is going through the

struggle phase these days, but presents before us an

interesting case of how Human Resource is slowly

transforming into Human Capital: the Airline Industry.

The Airline Industry in India has been plagued with issues

from high taxes to high airport parking rates, etc. However,

there has been a silver lining, a survivor here as well. Indigo

Airlines has been one Airline that has been performing well

on the charts and making profits consistently despite all the

problems that the Industry is facing presently.

The figure below depicts the growth story of Indigo airlines.

It shows how the organization has grown through the years.

IndiGo is the latest entrant as a low cost carrier in the

aviation industry of India. It started its operations on August

4, 2006. InterGlobe Enterprises, a renowned travel

corporation, is the owner of IndiGo. If we analyze the

reasons behind the success of Indigo, there are many. It is

perceived as an Airline where Affordable rates, hassle free

travel and timeliness are provided. However, as our topic of

discussion is HR Specific, we will limit ourselves to looking

into what policies Indigo follows that makes it a successful

organization.

1. Indigo has a Rotation Policy which is a privilege that

only the airport staff enjoy, it seems to be the most

flexible out of all the departments but the support

staff does have the freedom to opt for better

opportunities via Internal Job Postings (IJPs).

Employees are provided with ample opportunity to

learn and nurture their potentials in different fields

of employment.

2. They just fly Airbus A320-200, which makes it easy

for them to train Pilots, and engineers, maintaining a

uniform approach.

3. They also have an InterGlobe Learning Academy,

which is strategically designed to provide key

transition points in an employee’s career ranging

from a new hire to supervisors.

Overall, Indigo’s philosophy is that it provides the

employees with suitable skills and learning which

helps them improve their performance and

productivity and also enhance their leadership

potential. There are many other examples. Let’s

take GE for that matter. GE is known as a Talent

Machine, with a history of making Leaders. The

training, development, skill building and

experience that it provides are phenomenal.


So here we see a wonderful conversion of Human Resource

into a capital, which in turn converts the next resource into

Capital and so the process has been going on for decades.

Here, the infiniteness of Human Capital is easily evident.

Even in India, there are so many software giants that run

only because they are able to train and develop a bunch of

untrained, fresh, just out of college graduates and convert

them into a profit generating Capital. So, the crux of the

matter is that there is a strategic effort to create Core-

Competency with the help of their Human Resource, in

such a way that they form a very strong chain of competen-

cies, which are extremely difficult to imitate, and hence in

this process Human Capital Formation takes place.

All the global giants have realized the importance of Human

Capital and are working towards the development of a

more robust and a better trained workforce. One of the

best examples is the Ulysses program by PWC. Under this

program the next in line partners are sent to the develop-

ing world for eight week service projects. For example: Last

summer, Tahir Ayub, a partner was sent for a consulting

gig. His job: helping village leaders in the Namibian outback

grapple with their community's growing AIDS crisis. Faced

with language barriers, cultural differences, and scant ac-

cess to electricity, Ulysses both tests the talent and ex-

pands the worldview of the accounting firm's future lead-

ers. This program has also attracted the attention of John-

son and Johnson, CISCO, etc.

So, the next question that strikes is: why this shift?

The answer is change; the macro-economic – political, eco-

nomic, social, technological forces keep on challenging the

capabilities of an organization. To counter this force, organ-

izations need to respond and adjust to the environment.

This effective adjustment is known as strategic shift. As the

economy evolves, the requirements of the industry become

varied and highly complex. Also, the demands of the organ-

ization depend on the type of industry, the market, the

available workforce, skills required and a host of other fac-

tors. This makes the Human Capital a very complex func-

tion which cannot be managed easily.

A very appropriate example would be Google Singapore.

They acquired a highly talented pool of Human Resource

from Facebook in order to tap their skills. But, the pool

could not fit into the Google environment and failed to

deliver the desired results. So, not every organization can

manage this strategic shift properly. Also, each job has a

different requirement in terms of skills, commitment, etc

and the competencies required may differ across industries

and across organizations. Now talking in the HR context, it

becomes necessary to understand this shift from human

resource to human capital. This shift has initiated another

function in the field of HR where it is important to track the

return on investment. For this, you need objective

measures—this is where human capital metrics come

in. According to Mercer, the Human Resource metrics are

quantitative indicators about human function whereas,

Human capital metrics are about the business and not the

HR function. Human Capital metrics are about:

1. The workforce (i.e., the asset)

2. The impact of management practices on the work-

force

The Human Capital has become the fundamental require-

ment of the industry today and organizations need to tap it

properly in order to gain the competitive advantage be-

cause in today’s fast changing world, it’s important to move

fast but it is more important to move FIRST.

References:

http://www.humancapitalreview.org/content/default.asp?

Article_ID=543

http://www.mercer.com/pages/1471605

http://www.businessweek.com/stories/2004-09-05/it-takes-a-

village-and-a-consultant

http://www.ey.com/GL/en/Services/Strategic-Growth-Markets/

Human-Capital--focusing-on-people---the-essential-guide-for-fast-

growth-companies

http://www.humancapitalreview.org/content/default.asp?Article_ID=543

http://www.humancapitalreview.org/content/default.asp?Article_ID=543

http://www.mercer.com/pages/1471605

http://www.businessweek.com/stories/2004-09-05/it-takes-a-village-and-a-consultant

http://www.businessweek.com/stories/2004-09-05/it-takes-a-village-and-a-consultant

http://www.ey.com/GL/en/Services/Strategic-Growth-Markets/Human-Capital--focusing-on-people---the-essential-guide-for-fast-growth-companies




Impact of analytics in supply chain and adaptability of supporting technological innovation – FMCG Indian

perspective

Arun Kumar S, IIM Indore

Analytics is the science of examining raw data with the purpose of drawing conclu-

sions about that information. Analytics is used in many industries to allow companies and

organization to make better business decisions and in the sciences to verify or disprove ex-

isting models or theories. The decision can be descriptive, which involves extracting infor-

mation from data and make decisions such as “Which store to concentrate in a locality” or it

can be predictive, involving predicting future trends or consumer/customer behavior for

instance “How many customers will leave my program in next month?”.

Use of analytics for business decision is on the raise; however we are far from uti-

lizing full potential of analytics in business. According to a Bloomberg report 97% of compa-

nies surveyed across geographies with revenue more than $ 100 million use analytics for

decision making, up from 90% in 2009. But the odd part is only 25% of these companies feel

there is value in using analytics for decision making. Reasons for non-realization of value

from analytics can be attributed to lack of analytical talent, implementation of analytics at

an organizational level, moving up from traditional spreadsheet analytics to advanced ana-

lytics which organizes data across departments and enable them to make strategically as

well as tactical decisions.

As markets become more global and competition intensifies, firms are beginning to

realize that competition is not exclusively a firm versus firm domain but a supply chain

against supply chain phenomenon. Many firms take a stand that supply chain cost are one

of the firm figures available in their cost sheet and whatever the information they require

are already available while a few agree that they have scope for improvement they don’t

agree on ROI from analytics. Managing supply chain is one of the complex business process-

es and to identify insights we need to have an overall view of the entire chain and in depth

analysis for root cause analysis. Importance of analytics in supply chain can bewell grounded

by its complexity and the prominent role it plays in cost structure of the company. Many of

the recent improvements in supply chain are minor re-tuning due to “done-it this-way-for-

year attitude”. As Albert Einstein puts it “we can’t solve problems using the same kind of

thinking we used when we created them”. Wal-Mart, Groupon, Tesco are few companies

using analytics in their supply chain to considerable extent.

Current Supply chain practices and analytics methods:

Usage of analytics can be dated back to world war-II, when US army used analytics to derive

various logistical models. Similarly many of the organizations use various analytical tools

predominantly excel based to analyze their role and to make things simpler. The issue lies in

islands of data, fragmented analysis of supply chain, deluge of reports that flows within or-

ganization, availability & sanctity of data, lack of analytical talent and tools. The figure be-

low represents impact of lack of data and proper tools in supply chain management. With-

out such information and technology individual organizations functions virtually as multiple

organizations which is exactly opposite to what supply chain management intends to do.


With evolution of advanced analytics and technology such as

EDI, Barcode, RFID and IT capabilities, companies can look

forward to integrate available information and take real

time decision like extending promotional offers, impact of

specific sales promotion, understanding behavioural pattern

of consumers using point of sales data, predictive analysis

incorporating macroeconomic factors and environmental

factors. Further they can improve value chain efficiency by

approaching supply chain from intra organization to inter

organizational perspective.

Indian FMCG & CPG Industry and the challenges faced:

Indian FMCG industry, a $ 13.1 billion industry provides

great growth opportunities but to extract maximum value

the company has to crack India’s inherent challenge in sup-

ply chain including increasing rural consumption, highly frag-

mented logistics providers, lack of data down the supply

chain for analysis, sourcing uncertainties and uncertainty of

data for network modelling. Supply chain is the heart line of

FMCG companies, where availability of right products at

right location in right time plays a critical role. This article

explains how the supply chain is improved/can be improved

in FMCG by use of analytics aided by technology. Emphasis

is given to technology rather than stages in supply chain.

Sourcing& Production:

Impact on price due to increasing competition

makes companies to look for price competitiveness and reli-

ability with its suppliers. With geographically spread sourc-

ing the companies can look for optimum sourcing consider-

ing lead time, cost and service level agreement of individual

suppliers.

This will be handy in benchmarking performance of various

providers. With information from tracking of shipments dy-

namic routing of shipments can be implemented which will

reduce inventory to great extent. Even location of ware-

houses and distribution rights can be optimized to ensure

low cost and better service.

All the above analysis can be executed if and only if we have

sufficient data for analytics. In India where majority of the

supply chain partners are unorganized hence extracting in-

formation across supply chain is a formidable task. In case of

organized retail we can extract information till point of sales

data but in case of unorganized retail POS data is not feasi-

ble. Even data till retail outlet has great benefits and the

value lying in that part of the chain is still to be explored.

Organized retail at consumer end:

In case of organized retail, collaborating with retail-

ers can help us in accessing customer level data. With in-

crease in loyalty programs by retailers we have access to

consumer level data which can be used to derive behavioral

insights which are used in new product development, new

or extension of promotional offers etc., Barcode is the tech-

nology currently prevalent in this industry for POS data. EDI

852 is the standard for sending point of sales data and in-

ventory activity. With most of the organized retailers mov-

ing towards vendor managed inventory accessing POS data

has become much easier in current scenario.

Unorganized retail at retailer end:

Retailers in unorganized retail are reluctant in in-

vesting barcode scanners due to cost, volume and level of

knowledge. But the companies can ensure that they collect

No/Low-Visibility of inventory in transit and touch points Improper forecasts for demand & Supply Decision- Making based on out-of date or inaccurate data

Inefficient methods of data

capturing mechanisms

Error-Prone pro-

cess

Lack of tracking

Non- Inte-grated sys-

tems

Stock outs

Lost sales

Delayed shipments

Production slowdowns

Excess buffer in-ventory

Shrinkage and billing

delays

Where are we managing our supply chain??

They can use the data for contract review, nego-

tiations, SLA compliance etc., .Dash boards eval-

uating basic KPIs are used in many companies,

but real time analysis of data, deep diving and

root causes are yet to catch up. Oracle business

intelligence, Genpact supply chain analytics are

some tools to name a few. With ability to access

real time data, companies can avoid under/over

production for specific products. Individual ma-

chine reports and ROI for specific machines pre

and post purchase can be calculated, thereby

making informed decision on machineries.

Logistics:

Performance, cost calculation and other

compliance can be monitored using analytics.


Required data for advanced analytics

Easily accessible data with comparatively low investment

Readily available data

Raw mate-rials

Supplier

Factory Ware-house

CFA

Distribu-tors

Wholesal-ers

Retail

Consum-ers

data till retail outlets through distributor’s/agent’s salesper-

son. With handheld devices, it is now easy to track orders

from individual retailers. TVS electronics’ ‘sanskrITi’ is one

such innovation which enables companies to collect retailer

level replenishment data at SKU level. With this the compa-

nies can plan for production cycles at appropriate level re-

ducing stock outs and accumulation of inventories in un-

wanted locations. These would increase inventory cycles of

companies and better satisfaction levels to their customers

by ensuring availability of right products as per their prefer-

ence.

Technologies and innovations implemented in the value chain:

In organized retail outlets source their supply either

from the CFA/ distributors where RFIDs are used to track

real time data. Company can respond reactively which is

much faster than

proactive response

of current analysis.

RFID tags are non-

contact sensors

which can track

products from a

distance unlike bar

codes. They can be

tracked on a continuous basis right from the items leaving

factory to point of bulk breaking. This coupled with GPS ena-

ble telematics gives access to real time data across the value

chain till it reaches distributor’s repository. Pantaloons im-

plemented RFID tracking with 1000 RFID tags in one of its

warehouses. In case of FMCG where there is frequent move-

ment of pallets and dollies, tracking them becomes easier

with RFID tags. With increased usage RFID tags are getting

cheaper, currently a passive RFID tag costs around 15 INR

and a receiver costs less than 2000 INR. The cost goes down

considerably with increase in volume. With implementation

of EPC across products a single receiver can be used to rec-

ord real time movement of products. This will ensure reduc-

tion in delayed ship-

ments, shrinkage and

maintaining optimum

level of stocks in ware-

houses and distributor

locations. Adoption of

RFID tags in India is low

due to cost involved and

penetration of barcodes.

But the benefit due to

barcode and RFID tags

are entirely different.

Other EDI standards

which are used in real

time tracking are EDI 867 for warehouse withdrawals, 816

for store lists and 830 to access forecast information across

supply chain. This data can be used to understand forecasts

at individual touch point and to optimize production plan.

Many organizations integrate this data to their enterprise

package such as SAP to use them in their decision making

processes. Apart from this specific advanced analytics tool

helps us in monitoring product performance region wise and

stock outs at specific location at SKU level. In Indian scenario

where distributors stocks products of multiple companies

loss of potential data is an issue. But RFID has provision to

protect tracking secure by encrypting the transmission sig-

nals

GPS based telematics ensures that there are no un-

warranted delays or theft of products during transit. Blue

dart, Mahindra, Gati, are some of the logistics providers

who support telematics based tracking systems.


uncertainty in climate, road conditions and reduced buffer

sizes it is extremely important for the companies to track

shipments in real time. Several companies are coming up

with devices which can be fixed in trucks to track ship-

ments. FMCG companies can invest on infrastructures such

as RFID in distributor’s warehouses to have access to real

time data.

With power of technology and advanced analytics

the companies can change around their traditional supply

chain to intelligent supply chain or sensory supply chain

which has better responsiveness, control and flexibility. It

is understandable that impact of analytics entirely depends

on sanctity of data used. Current analytical tools have pro-

vision to correct errors in data and derive inferences. With

advancement in analytics the decision making can be made

automatic thereby making the system to make real time

decision without human intervention.

References

EDI- Electronic data interchange – an interface protocol

used across and within organization to send and receive data

http://www.tvs-e.in/pdf/TVS-E-firms-up-its-presence-in-

Retail-POS.pdf

RFID- Radio frequency identification

International journal of innovation- RFID the best technolo-gy in supply chain management

Techtarget.com

“Current state of Business analytics: Where do we go from here?” – Bloomberg paper - 2011


Quantitative easing - A blessing or a

curse? Rini Kothari, SIBM

Introduction Quantitative easing (QE) is an unconventional monetary policy tool used by central banks to

stimulate the economy when conventional monetary policy has become ineffective.

When the nominal interest rate is very low and close to zero, the central bank cannot lower it

further. This is called a liquidity trap and it can occur during deflation or when inflation is very

low. In such a situation, the central bank may implement quantitative easing by purchasing a

predetermined amount of bonds or other assets from financial institutions. This will then

increase the demand for the bonds and raise the prices or conversely lower the yield on the

bonds issued. The goal of QE is to increase the money supply and stimulate demand rather

than to decrease the interest rate, which cannot be decreased further.

From the time of the global financial crisis, both the Federal Reserve and the Bank of England

and have used the policy of quantitative easing to revive consumer spending and economic

growth.

For instance, during the financial crisis of 2008, high unemployment and slow growth forced

the U.S Federal Reserve to stimulate the economy through its policy of quantitative easing in

the interval from November 25, 2008 through June 2010. The program had little impact

initially, so the Fed announced an expansion of the program from $600 billion to $1.25 trillion

on March 18, 2009.

But soon after the program ended the economy again showed signs of slow growth, & with

the rise of the European debt crisis there was a renewed instability in the financial markets.

So the Fed introduced a second round of quantitative easing, which came to be known as QE2

and involved the purchase of $600 billion worth of short-term bonds. This program ran from

November 2010 through June 2011 and although it sparked a rally in the financial markets, it

did little to spur sustainable economic growth. The consequences were the same as those

following QE1, which again resulted in weak economic data and poor stock market

performance.

In September 2012, the Fed said it would spend a further $40bn per month by purchasing

mortgage- backed securities until the labor market improves. This is in addition to the $2.3tn

that Fed has put into QE since 2008. The Bank of England, on the other hand, has committed

a total of £375bn to QE so far.

During the past 20 years, there have been other instances where QE has been employed by

the Bank of Japan and the European Central Bank.

The Great Recession and Euro zone debt crises—drivers of unprecedented QE

The need for such aggressive monetary actions in recent years can be traced to the U.S. real


estate bubble, which burst in 2007, and to the more-recent

sovereign debt crisis in the Euro zone. When the toxicity of

subprime mortgage instruments came to light near the end

of the past decade, the U.S. equity market plummeted,

financial institutions suffered huge losses, and investor

confidence took a nose-dive. The nightmare of this series of

events quickly spread to the world, and the Great Recession

was born.

The central banks in developed countries, which were faced

with task of reviving their flagging economies, responded to

the crisis by unprecedented levels of quantitative easing.

Many of these banks were already overleveraged and/or

saddling their balance sheets with additional debt in the

form of bailouts. This led to a sharp increase in developed-

market government debt since the Great Recession,

compared to the much lower levels of debt in emerging

markets. This also illustrates why emerging markets became

a target for excess liquidity. The graph below shows that as

compared to emerging markets, debt levels in developed

economies are rising sharply.

Need of QE in the current economic conditions

Since the second half of 2008 and during 2009, spending in

the economy has slowed very sharply as the global

recession gathered pace. This slow growth bears the threat

of a downward spiral through contraction of the real output

combined with price deflation.

An American economic recovery is important from the

perspective of achieving global economic recovery. As the

Fed has a dual mandate to maintain price stability and full

employment, the relative lack of inflation at present gives

the Fed room to act on helping the employment scenario.

According to a dismal employment report released in

September 2012, the unemployment rate, despite dipping

slightly in previous months, remained above 8% and

employers could only add 96,000 jobs to payrolls last

month. This is well below economists' forecasts of 125,000

jobs. In this scenario where inflation is below the official

target of 2 per cent for both the Fed and Bank of England,

quantitative easing is expected to jump start the economy

through stimulus spending.

Currently, the Fed’s concern is that the sluggish economy

would result in deflation which is a bigger threat to

economic growth than inflation. Let’s take the example of

the housing market to see how this works. The housing

market has experienced a deflation in prices of about 30%

since the housing bubble burst. Due to this deflation in

prices people are hesitant about buying homes until prices

start trending up again. The skepticism among home buyers

causes the housing prices to fall further in a vicious,

depressing trend.

In such a setup, the U.S Fed’s launch of QE3, which will

pump $40 billion into the US Economy each month, is

aimed at reducing the unemployment levels and reviving

the housing sector.

Source: Government agencies, as of Dec. 31, 2011


Impact on emerging markets

QE leads to greater availability of credit in developed mar-

kets. But as this supply of money has not been offset by a

demand, it results into excess liquidity. This surplus capital

from developed countries flows to the emerging markets

and has an adverse effect on their currency exchange rates,

inflation levels and export competitiveness.

There are a number of reasons why emerging markets are a

popular target of excess capital. Some of the reasons are:

The overall ability of emerging markets to take on debt

is strong

Investment yields in these countries are high

As compared to developed markets, they have experi-

enced minimal balance sheet impairments.

As emerging markets have lower debt-to-GDP ratios ,

they have relatively lower levels of pre-existing leverage

The more specific effects of these cash flows on emerging

markets are:

Global Inflation: Emerging markets like India are already

facing a high rate of inflation. An increase in liquidity will

further aggravate the inflation to unmanageable levels.

Currency depreciation: Increased supply of the dollar will

lead to its weakening against major world currencies, and

thus improve its export competitiveness. This will have an

adverse effect on emerging markets, which are more de-

pendent on exports and have less well developed domestic

consumer economies.

Currency Carry Trade: QE facilitates ‘currency carry trade’

in which speculators borrow money at low interest rates

and invest it in developing countries at a much higher inter-

est rate. This will have the destabilizing effects of rapid cur-

rency appreciation and asset bubbles.

Effect on S&P 500 prices

Quantitative easing tends to pump up the prices of financial

assets such as stocks and commodities. This can be seen in

the rise of S&P 500 prices with the expansion of the Fed’s

balance sheet. But as the money-printing effects start to

wear off, the index again shows a downward trend. Thus, by

forcing interest rates lower, QE makes bonds less attractive

and therefore stocks seem like a better alternative. This

effectively inflates a false stock market bubble that could

burst once the intervention ends. The graph given below

illustrates how S&P 500 prices started to rise when QE start-

ed and stopped rising when QE was terminated.

Effect on Employment

A major motive behind the unprecedented use of quantita-

tive easing has been the high unemployment levels and the

sluggish job recovery since the financial crisis in 2008. With

the introduction of QE and better financial conditions in

place, households and businesses are expected to be more

willing to spend, thus improving employment prospects and

raising incomes.

In actuality, however, unemployment levels have remained

stubbornly high over 9%, the population participation rate

in the labor force has constantly decreased and the employ-

ment-population ratio has shown no signs of improvement

during the last two years. The graph below shows that QE

has not been very successful in aiding the unemployed.

Effect on Mortgage Lending and Housing Markets

The Federal Reserve has mentioned that QE has been

implemented to support mortgage lending and hous-

ing markets with lower interest rates. But according to


the data released by S&P Indices for its S&P/Case-Shiller

Home Price Indices, the leading measure of U.S. home pric-

es, all three headline composites – the national composite

and the 10- and 20-City composites have ended the first

quarter of 2012 at new post-crisis lows. This shows that QE

has clearly failed to recover the housing sector and at best,

it has just reduced the rate by which it is weakening. The

graph below shows that the Case-Shiller Home Price index is

heading downwards.

Blessing or Curse

Analyzing the effects of QE policy of the U.S Fed, we can

draw up the following points:

By the use of quantitative easing the Fed has not been able

to reduce unemployment in a meaningful manner or create

a recovery in the housing market. Thus QE does not deal

with resolving the underlying causes of the current econom-

ic weakness.

Another round of QE will add to the already enormous na-

tional deficit. Even though the interest rates are already at

historic lows, businesses and homeowners are still having

trouble borrowing as banks have not taken an aggressive

stance on lending. So a major risk with more QE is that it

may fail to achieve the desired result of boosting economic

growth because Americans are so indebted they do not

want to borrow more even when the loan is very cheap.

Another risk is that the banks and other investors may take

the money and invest into assets like shares and commodi-

ties, rather than lending it for more productive purposes like

business investment. This will further push the asset prices

higher.

The massive amounts of flowing into

emerging markets as a result of expansion-

ary monetary actions in developed markets

will lead to skyrocketing levels of foreign

investment into these emerging markets,

resulting in an overvaluation of the their

currencies and subsequently damaging

exports.

Also, further QE may add to our problems

when the Central Bank has to unload all

the bonds it has purchased. When the Fed

decides to sell all the bonds it bought dur-

ing the three phases of QE, interest rates

will be driven up and may stall the eco-

nomic recovery just when it has finally tak-

en off.

Ultra-easy monetary policies such as QE can be a threat to

the health of financial institutions and the functioning of

financial markets. Temporary, higher-than-normal inflation,

as a result of such a policy, causes wage and price adjust-

ments and erodes the real value of household debts. It

should also be noted that when nominal interest rates are

close to zero, a higher inflation rate translates to a much

lower real interest rate.

Thus, we can conclude that, supply of additional liquidity

through QE is a questionable solution towards resurrecting

today’s economy and, not a panacea in creating sustainable

demand.

References

S&P/Case-Shiller Home Price Indices, Standard &

Poor's Financial Services, May 2012 Retrieved from

http://www.standardandpoors.com/indices


Sustainability and Green Manufacturing

- Gaurav Kumar, NITIE

Quoting the most widely used definition, “Sustainable development is devel-

opment that meets the needs of the present without compromising the ability of future

generations to meet their own needs”. However, any development that involves con-

sumption of natural resources is bound to create a scarcity of them in the future. Moreo-

ver, it is bound to affect the society, the environment and the economy in various ways.

Can we sustain the earth’s bountiful natural resources, while rapidly enhancing the use of

technology in every sphere of life?

The rapid development in technology combined with the huge footprints of the

organization has lead to serious global issues like global warming, climate change, rising

of sea levels, extreme temperatures etc. On the other hand, it has created huge opportu-

nities for innovation in the field of sustainability.

There are four ways in which any organization perceives sustainability:

1. Liability

2. Compliance

3. Integrating sustainability into the business and deriving profit out of it

4. Sustainable development is the core business

Most organizations in India are at a stage where sustainable practices are seen

as a liability or compliance. It is a challenge for them to integrate sustainability into the

core business. Then there are firms who have restructured their strategies by inculcating

environment friendly practices in their businesses. These include organizations like ITC,

HUL, etc. who are making a profit out of going green by being carbon, water and waste

positive in their business. These are organizations that have been able to inculcate sus-

tainable strategies into their business and reap the benefits.

As per National Council for Advanced Manufacturing

(NACFAM), USA “Sustainable manufacturing is defined as the creation of manufactured

products that use processes that are non-polluting, conserve energy and natural re-

sources, and are economically sound and safe for employees, communities, and consum-

ers.”

A plethora of organizations in the field of manufacturing have been striving to

achieve excellence by adopting methods of lean manufacturing, six sigma etc. Recently,

there has been a trend to inculcate “green manufacturing” practices into the working of

the company to make manufacturing sustainable. Before going further, let us define the

term “green manufacturing”.


The term “green” manufacturing can be looked at in two

ways:

1. The manufacturing of “green” products, particularly

those used in renewable energy systems and clean

technology equipment of all kinds.

It includes production of supercritical boilers, tur-

bines, solar photovoltaic (PV) cells etc. for industrial use

as well as CFLs, LEDs for common use. Of course, the man-

ufacturing of all these is sustainable only if they are finan-

cially profitable. The supercritical boilers and turbines are

costlier than the subcritical ones but they certainly pay off

in the long run. However, the production of solar PV cells

and their mass manufacturing is still a challenge because

of huge costs.

Also, the use of CFLs and LEDs when implemented

on a massive scale can go a long way in improving energy

efficiency. A CFL has an average lifespan of about 7 years.

It pays for itself in 0.33 years and has a lifetime savings of

$44 (http://www.ecooptions.homedepot.com/efficiency-

audit/#.UKNhD4fFXXB). LEDs are a bit costlier and the

payback period is around 1.5 years but their lifetime sav-

ings are even more.

The direct drive turbine systems that replace gear-

boxes with low speed generators, dramatically cut

down on generators weight thereby improving tur-

bine’s reliability and efficiency and reducing costs.

Properly insulating walls which can prevent up to

20% of heat loss; and planting a shade tree around

one’s home which has a positive impact on your

heating and cooling costs as well as a positive impact

on the environment that can last for generations.

The direct drive turbine systems that replace gear-

boxes with low speed generators, dramatically cut

down on generators weight thereby improving tur-

bine’s reliability and efficiency and reducing costs.

Properly insulating walls which can prevent up to

20% of heat loss; and planting a shade tree around

one’s home which has a positive impact on your

heating and cooling costs

2. The “greening” of manufacturing — reducing pollution

and waste by minimizing natural resource use, recy-

cling and reusing what was considered waste, and

reducing emissions.

One may wonder, how does reduce-reuse-recycle matter.

Let’s take a small example. Consider the savings when you

recycle all your household paper products for a year. Well,

it saves:

607 car miles driven

895 gallon of water

2.23 trees

Imagine the savings if a multitude of humanity resorts to

such small initiatives. There is less waste for landfills, less

exploitation of natural resources, reduced energy con-

sumption which also results in saving of economic re-

sources.

A multitude of businesses are now increasing their focus

on reducing resource use, waste, and pollution, along with

recycling and reusing what was formerly looked at as

“waste”. The term “waste” has a very negative connota-

tion in our minds. However, it is a resource which we have

been unable to utilize. We need to come up with innova-

tive solutions to utilize the energy contained in the re-

source called waste. One such innovation is development

of ecological industrial parks in which all the products are

designed and manufactured in environmentally friendly

ways. Not only that, but the businesses are organized so

that the waste produced by one company can be used as

raw material by another.

There have been innovations in products for waste recy-

cling, some of which are:

Nubagg, which is a “freakishly lightweight” metal

frame that is used as a support for the plastic bags

you bring home from the supermarket.

Making compost from garden and household waste

which is easy and economical and also helps re-

duce pollution by cutting down on landfill and also

enhances plants’ health. It also eliminates the need

for fertilizers.

http://www.ecooptions.homedepot.com/efficiency-audit/#.UKNhD4fFXXB

http://www.ecooptions.homedepot.com/efficiency-audit/#.UKNhD4fFXXB


There are firms like the Home Depot, an online meg-

astore in US, which offer recycling programs for CFLs,

rechargeable batteries and lighting. The Home Depot

sells moving boxes that are pulped, cleaned, de-

inked, drained and dried, resulting in paper and

packaging that’s 100 percent recycled. Apart from

that, such firms produce appliances that use signifi-

cantly less energy than the conventional products.

Apart from these small initiatives, large firms have been

striving to develop models to incorporate sustainability in

the design of their processes. e.g. NACFAM has developed a

model to determine how to utilize limited resources in mul-

tiple projects in order to develop a financially and environ-

mentally beneficial portfolio of sustainable manufacturing

projects. In this model, inputs are provided from various

departments in a firm and their environmental impact in

terms of energy, water, materials, chemicals, waste, GHG

emissions as well as financial impact in terms of O&M cost,

Loan terms, discount rates, IRR, NPV etc. are provided as

output.

Resource Recovery based Eco-Industrial Park


The table below shows the functions provided by the model:

Financial Environmental

Discounted Cash Flows

Payback Period

Internal Rate of Return

Net Present Value (NPV)

Cumulative NPV per unit

GHG emissions measured in CO2 equivalent

Emissions of sulpher oxides measured in SO2 equivalent

Emission of nitrogen oxides measured in tons

Solid and chemical wastes measured in tons

Chemical usage measured in gallons or pounds

Material usage measured in pounds

Water usage measured in hundred cubic feet (HCF)

Electricity usage measured in kilowatt hours (kWh)

Natural gas usage in thousand cubic feet (TCF)

The model supports that the full benefits of sustainability

can only be realized by addressing full life-cycle of a re-

source through techniques like Life Cycle Assessment

(LCA) etc. and ensuring that connections are made be-

tween everything from design to delivery and environ-

mental impacts of material, chemical and other manufac-

turing inputs to end-of-life management. The same has

been reflected in the design of the above mentioned func-

tions in the model.

The model links different product lifecycle stages in a logi-

cal manner and achieves the objectives of understanding

the environmental impacts, costs and risks in financial

terms and improving the ROI of the internal sustainability

initiatives of a business.

Similar approach is implemented in one of the world’s

largest Aerospace and Defense (A&D) company which

recently took a systematic and financial approach to sus-

tainability (http://www.enviance.com/resources/wp-

bridging-the-gap.aspx). The figure below shows the ROI of

various environmental projects at the company:

The cumulative ROI improvement opportunities for all

these projects amounted to $ 30M. However, not all pro-

jects were scalable. Also, some low ROI projects were also

required to be continued for non financial reasons. Finally,

the company developed logic to choose the projects to

focus upon:

Logic to evaluate sustainability initiatives

Such an analysis was possible only because the environ-

mental impacts were translated into financial terms. Only

by doing so, it was able to calculate the true cost of its

sustainability initiatives and focus on the best opportuni-

ty.

Another very promising sustainability initiative (which can

also help in the greening of manicuring or any business) is

the smart grid system where power distribution is con-

trolled through an internet application (which may be

android based). It will ensure the optimum use of electric-

ity and will greatly enhance the use of cleaner fuels like

solar, wind, hydro and other renewable sources of power.

The application has the following features:

1. One can control his household appliances from cell

phone or any other device connected to internet.

2. All the LEED certified green buildings or any energy

positive building can sell off excess energy to the smart

grid.

3. The price of power fluctuates depending upon the time

and the source of power. Renewable power is subsidized

http://www.enviance.com/resources/wp-bridging-the-gap.aspx



3. The price of power fluctuates depending upon the time

and the source of power. Renewable power is subsidized

and priced below power from fossils to reduce consumption

of coal and oil. Also, the battery operated vehicles can be

charged at a time when cheapest power from renewable

sources is available.

Such models and practices not only make a business sus-

tainable in the long run; they inculcate a culture of

“thinking beyond greening” because sustainability is not

just about greening. New ways of thinking about manufac-

turing, both broadly and narrowly, are having a big impact

on manufacturers worldwide. Such efforts are intimately

entwined with a movement toward taking on, or accepting,

greater corporate social responsibility. Efforts are being

made to reinvent the processes such that green manufac-

turing is the only profitable way of doing business. All such

initiatives, when implemented will not only ensure opti-

mum utilization of natural resources, but also help busi-

nesses in weaving sustainable business practices and inte-

grating them into their business plans.

References:

http://www.ecooptions.homedepot.com/green-project-

guide/

http://inhabitat.com/

http://energy.gov/oe/technology-development/smart-

grid

http://www.nacfam.org/PolicyInitiatives/

SustainableManufacturing/tabid/64/Default.aspx

http://www.gogreen.coop/otherNavigation/aboutUs.aspx

http://www.enviance.com/resources/wp-bridging-the-

gap.aspx

http://www.ecooptions.homedepot.com/green-project-guide/

http://www.ecooptions.homedepot.com/green-project-guide/

http://inhabitat.com/

http://energy.gov/oe/technology-development/smart-grid

http://energy.gov/oe/technology-development/smart-grid

http://www.nacfam.org/PolicyInitiatives/SustainableManufacturing/tabid/64/Default.aspx

http://www.nacfam.org/PolicyInitiatives/SustainableManufacturing/tabid/64/Default.aspx

http://www.gogreen.coop/otherNavigation/aboutUs.aspx




Innovations for the Bottom of the

Pyramid (BoP)

Rithika Baruah ,Saurav Agarwal, IIM Kozhikode

4 billion is a number that is hard to count. 4 billion is a num-

ber so huge that if anybody is told that there is an untapped

market this huge, then throat-slashing competition be-

tween companies to capture it would start at this moment

itself. And it has! The number of people with a total house-

hold income of only $5 trillion a year in this world is this

huge number 4 billion. These people constitute the poor in

the world, also known as Bottom of the Pyramid (BoP).

Despite C.K. Prahlad’s excellent revelation of this market

that was never really targeted on and despite the efforts of

numerous MNCs to make it big in these emerging markets,

only a few firms have managed to fabricate sizeable busi-

nesses serving the BoP. The question is why not. The an-

swer lies in the much clichéd word: Innovation!

The BoP consists of people who cannot afford products and

the obvious solution to it seems to be bringing the same

products in smaller packets (the much hyped case study on

sachets in B-schools being a testimony) or bringing it to

them at a cheaper price. But all is not so well with this logic

and this is where most of the companies failed. As Peter

White, Director of Global Sustainability at Procter & Gamble

mentioned, “It’s not just about making products cheaper”,

the BoP is a new ball game altogether. The key to unlock its

potential is innovation. Innovation brought about by looking

at the BoP with the lenses that they wear. Bringing the new

iPhone ‘Siri’ might be an unsurpassable technological inno-

vation but innovation for the BoP takes a lot more.

For starters, understanding the BoP is most important.

What BoP is not is a set of homogenous individuals without

money. In fact, for most of the products and services availa-

ble today, the BoP is not even a market! Why so? Because

they don't possess the primary trait of a consumer which is

to think that the available product is a need, want or desire

and that he/she should pay for it. This is analogous to 1800s

when bottled water was never a product which could be

sold because although clean drinking water was a need, it

was not a commodity worth paying money for. That market

has to be created and to do that, companies have to inno-

vate the lifestyle and behavior of the consumer rather than

the product. Similar to the idea of bottled water!

In order to prosper in the next decade firms need to be-

come adept at reverse innovation, i.e., understanding the

heterogeneous segments within the BoP and localizing val-

ue creation for each target segment. Perhaps, the next

buzzword in the business world would be ‘glocalization’

instead of globalization. Moreover, the BoP must be under-

stood from the lifestyle of each segment within the BoP. For

example, market research at P&G revealed that instead of

stories about products relieving miseries of the poor, what

really attracts the consumers are positive advertisements

about how the product would make their lives more enter-

taining and lively. The stories, thus, have to be told their

way. Not only that, firms must innovate ways to enable ac-

cess to the consumers because most of the BoP around the

world have one similar characteristic, which is, lack of ac-

cess to the value that they are seeking. One Laptop Per

Child (OLPC) is an excellent example of distribution of lap-

tops for subsidized prices with the collaboration of local

governments and schools. Firms must intrigue the custom-

ers and make the product easily accessible, thus, making it

more likely to become a part of their routines.

The management jargon known as ‘trickle-down-effect’ is

history and the aware consumer even at the BoP today has

to be directly targeted to be won and tapped into. The firms

need to identify opportunities to make BoP a market and

develop business models around them. As soon as the com-

panies change the lenses they have always seen the BoP

with and innovate to meet the needs of these consumers,

they come up with, what we should call as, breakthrough

inventions like HUL’s ‘Shakti Amma’ and ITC’s ‘e-choupal’

happen which not only bring profits to the multinationals


story is that of mobile telephone networks in South Africa.

For instance, who could think that the idea of community

mobile phones could ever be envisaged! And the story does

not end here; energy and electronics are constantly inno-

vating to have products suited to the needs of the rural

region as one of the constraints is non-availability of elec-

tricity.

In a nutshell, the current scenario, although nascent, does

hint that businesses can be designed from the bottom-up

such that they are sustainable and robust enough to cross-

over to the developed world. It is certain that no matter

what happens to the economy, the next generation is going

to have a far better standard of living than we do because

continuous innovations will change the world so much so

that the famous quote by Franklin D. Roosevelt, “The for-

gotten man at the bottom of the economic pyramid” would

never be remembered tomorrow.

References:

World Resources Institute, International Finance Corpora-

tion

Works of Franklin D. Roosevelt, “The Forgotten Man”, April

7, 1932

C.K. Prahlad, “The Fortune at the Bottom of the Pyramid:

Eradicating Poverty Through Profits”


Introduction

`Does the stock market overreact?' De Bondt and Thaler in 1985 gave start to a new wave of thinking

known as behavioural finance. Weak form inefficiency of the stock market was discovered by them after

analysing how people are systematically overreacting to unexpected and dramatic news events which were

surprising and profound. The Efficient Market Hypothesis as proposed by Fama (1970) asserts that the

stock prices reflect the relevant information. The asset prices follow a random walk path i.e. they are

merely random numbers. The study conducted by Caginalp G. and H. Laurent (1998) by the predictive

power of price patterns finds patterns and confirms that they are statistically significant even in out-of-

sample testing and report.

The pattern of the stock index might help in predicting some of the effects of the various events. The

calendar anomalies tends to exist which goes against the efficient market hypothesis. The researchers have

used Gregorian calendar to investigate the calendar anomalies. There are various countries and societies

which follow their own calendar on the basis of their religion. For example, the Hebrew calendar is

followed by the Jewish society, which is strictly based on luni-solar, the Christian society follows the

Gregorian, which is based on solar, and similarly Hindu and Chinese follow their own.

The Hindu calendar is called “Panchanga” and it is based on both movements of the sun and the moon.

The festival of “Diwali” is typically occurs at the end of October and beginning of November.

The special ritual called “Mahurat Trading” can be observed on major stock exchanges like NSE, BSE,

NCDEX to name a few lasts for about an hour. It is performed as a symbolic ritual since many years. It

marks a link with the rich past and brokers look at it on a positive note. It marks an auspicious beginning to

the Hindu New Year. The investors place token orders and buy stocks for their children, which are

sometimes never sold and intraday profits are booked, however small they may be. Thus, it is widely

believed that trading on this day will bring wealth and prosperity throughout the year.

It is interesting to observe the behaviour of trading activities during the period preceding and succeeding

Mahurat Trading. The purpose of this study is to know the effect of the festival prior and post diwali on the

the returns.

Econometric methodology

I have measured stock return as the continuously compounded daily percentage change in the share price

index (S&P CNX NIFTY) as shown below:

Rt = (lnPt – lnPt-1) x 100 …………………… (1)

Where, Rt = return at time t

Pt, Pt-1 = closing value of the stock price index at time t, t-1.

I have used S&P CNX Nifty as it has got the most liquid stocks in its portfolio. Further, the National

Stock Exchange is largest in terms of Market capitalisation and Volume. I have used the data of the

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