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Why it is wrong to expect the government to treat Kingfisher Airlines and Air India the same! (by Amitava Chattopadhyay)

“Bail out Kingfisher like Air India” reads the headline of an article in Business Line today (November 27, 2012; p. 4). The article goes on to say that Assocham has asked the government to “provide a similar kind of financial help to Kingfisher Airlines, as extended to state-owned Air India” since independent of whether an organization is public or private, the “resources belong to the nation and should not be allowed to go down the drain.” I am shocked at the ridiculousness of the argument! The public sector exists to serve the nation, the private sector to serve the shareholders. Those shareholders, as far as Kingfisher Airlines is concerned is hardly the “nation”.

Importantly, why does the government bailout Air India? Or for that matter other public institutions. Perhaps the most significant reason is to control the private sector for the greater good of the nation. Having Air India and its lower than private sector fares, creates a ceiling on consumers’ willingness to pay for air travel by creating a perceptual anchor for what airfares should be. Without Air India, we would have much higher air fares in India, and the additional profits would flow in to the pockets of the promoters and other shareholders, not in to the pockets of the citizens, as it does now, through the lower prices that prevail. One wonders, what drives Assocham to make the statement it apparently has according to today’s Business Line.…

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B-School Research in India

A report in the latest issue of Business Today (BT) highlights the sad state of affairs in India’s b-schools. The 4000 plus b-schools in India have collectively produced 36 articles between 2009 and 2012, in the 24 journals tracked by UT Dallas as the leading journals in management. Compare this to the 276 articles produced in the same period by the Wharton School. The BT article made several observations about why this sorry state of affairs: shortage of funds for research, shortage of staff leading to higher teaching workloads, lack of data, lack of appraisal systems that incentivize research, and the lack of ability of faculty members to conduct research.

While these reasons are all valid, the government today is providing funding for research and the b-schools have begun to incentivize research in their appraisal systems. At a recent conference a couple of months ago in Bengaluru, I spoke to several academics from the IIMs which suggested that, today, funding is available and the IIMs are emphasizing and incentivizing research. I believe that what is holding back research output is the capability issue.

Why do many of the members the b-school faculty in India lack the capability for research? One key reason is the salary structure set by the Government of India, which has resulted in a flight of talent from academia. A salary structure, which at the top of the scale gives a senior faculty member a salary of roughly Rs. 100,000/month (US$ 1,800), is well below that offered …

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Global Brands and Local Tastes! (by Amitava Chattopadhyay)

“Starbucks Plays to Local Chinese Tastes” screams a Wall Street Journal headline (November 27, 2012) on the first page of its Business & Finance section. This makes total sense. To be a loved brand you need to have intimate knowledge of your target consumers and surprise them with your responsiveness. This is precisely what Starbucks is trying to do in China, even as it struggles to establish itself in India, trailing far behind the original estimate of store openings, which has recently been revised downwards to roughly half of what had been originally announced.

Unlike the US consumer of Starbucks who primarily grab a coffee and perhaps a sandwich on the go, the Chinese market sees Starbucks as a venue to sit, to relax, to meet, and to discuss business. This means that the kiosk-sized format popular in the US does not work well in China. In China, larger and more spacious stores with comfortable seating, extending to couches, becomes a key requirement. Starbucks is currently adding stores that are as big as 3,800 square feet to adapt to the demands of Chinese consumers.

It’s not just the space that’s at issue but the products themselves. China is a nation of tea drinkers having given this beverage to the world. Thus coffee while growing as a beverage, only goes that far. To adapt its portfolio, Starbucks has launched a R&D center in China, a center which has been responsible for launching menu items like the Hainan chicken-rice wrap and Thai-style …

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Liberalization of FDI in the Retail Sector in India–Why all the fuss?

The Government of India has finally liberalized the retail sector by allowing FDI to flow in to it, and at least 8 states out of the 28 states in the country–fortunately the 8 that account for over 50% of India’s economic output– seem to be aligned behind this decision. Tragically, it is laggard states like West Bengal and Bihar that have not accepted this new initiative, potentially setting up these states to fall further behind economically.

The lack of support for opening up of the Indian market to FDI in modern retail by 20 of India’s 28 states is frankly bemusing to me. Certainly, in the food sector, particularly fresh produce, the lack of organized, modern retail in India is responsible for higher prices for food products faced by the end consumer as well as lower prices received by the producers. The high price to end consumers is not only because the handful of middle-men manipulate prices, as was claimed in the Indian media, earlier this year, when prices of fresh produce spiraled dramatically upwards, but also because a large percentage of fresh produce is spoilt in transit due to poor packaging and the lack of refrigerated transport. These are problems that the entry of large modern retail is also likely to fix. Indeed a recent article in the Financial times noted that Carrefour, which is in India and currently sells to businesses, requiring a minimum per trip spend of Rs. 1000 (approx. US$19), offers prices that are lower by …

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Change of Guard! (by Amitava Chattopadhyay)

Mr. Ratan N. Tata stepped down as Chairman of the Tata Group on Friday heralding a change of guard after a 20+ year tenure at the helm of the Group. I remember when Mr. Tata was first appointed Chairman in 1991, there was much discussion about his suitability for the role. Yet, Mr. Tata proved to be a visionary leader. He transformed a sleepy and traditional business group, that was a loosely aligned set of companies which shared a common name, in to a $100bn global behemoth that had seven business lines under centralized management. Mr. Ratan Tata has also been responsible for converting the Tata Group in to a true multinational corporation; in 2008 its revenues outside India overtook revenues from within the country.

Mr. Tata’s transformative impact on the Group did not stop there, he changed the governance within the Tata Group companies, introducing a compulsory retirement age for company directors. As a good friend and senior executive at one of the Indian majors said to me in a conversation the other day, “beyond a certain age, it is difficult to hold the myriad details that a top executive needs to have readily accessible in their minds, so that they can make the important decisions that determine the future of the business.”

Not only has Mr. Tata transformed the Group and steered it through turbulent times, but the moves the group made during his tenure have inspired Indian industry at large. In March 2000, the then Tata Tea …

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