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We Have Moved!

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The downfall: How Research In Motion lost the plot!

It’s really hard to believe how Reasearch In Motion (RIM) once touted as the fastest growing mobile company, today finds itself in the pits! On June 7, RIM announced to the world that it will officialy discontinue its 16GB tablet ‘Playbook’. The Playbook is inarguably the worst performing RIM product ever. It was such a big disaster that even selling it for free was a difficult task. Earlier this year in January, RIM had announced a change in its leadership, whereby, the Co-CEOs Mike Lazaridis and Jim Balsillie stepped down and were replaced by another insider, Thorsten Heins. RIM’s share price has fallen by 90% from its 2008 highs and it is expected to post an operating loss in the three months ending June. What could have led to the slide in fortunes of such a great company? Let’s explore the reasons behind RIM’s fall.

RIM’s rise as the fastest growing mobile company was astonishing. In just a few years it became the dominant player in the industry. RIM was the weapon of choice for the political and enterprise class. CIO’s all over loved RIM’s devices. No one could have predicted that RIM’s fortunes could change so soon. From being the dominant player to being in apposition where questions are being asked about its future, RIM has traveled this downward journey in a very short span of time!

One major reason was the denial mode in which RIM’s top executives lived. RIM failed to understand the potential of Apple’s Iphone and Google Android based smartphones. To RIM these were pure consumer phones. However, things started to change for RIM as the corporate employees who had bought these expensive smartphones began bringing their devices to office. Many IT managers were comfortable with the idea of employees bringing in their own devices. Given the times of recession, this was also a cost effective way. The entire ‘Bring your own device’ (BYOD) trend has been capturing enterprises has meant that corporates are now much more comfortable in letting employees carry their own devices to work. This changing trend hurt RIM badly, as both Iphone and Android smartphones were slowly becoming the choice of consumers and eventually also finding their way into enterprises which has the main market of RIM’s Blackberry devices.

Another factor where RIM lagged was development of new products. In the five years since Iphone was released, RIM still hasn’t found a viable competitor to it! Its attempt to enter the tablet market also fell flat on its face. Whenever asked about its response to Iphone and Android phones, RIM has always talked about Blackberry 10. However, the Blackberry 10 operating system project has been delayed for too long now, and devices based on it will not be available in market until the end of this year.

Iphones and Android devices took over the market because they appealed to everyday users and not just the enterprise customers. Both Apple and Google launched their online app stores which allowed customers to download all the apps they needed from a single place. RIM was very late in launching its own app store. A major reason why enterprises loved the Blackberry was because of its security features. However, IT managers soon realized that similar security features could be obtained from third party vendors. The employees wanted to bring their expensive and snazzy devices to the office, corporates had to relent.

 

                                                                Thorsten Heins, Research In Motion CEO

When Thorsten Heins took over as CEO, he tried to downplay RIM’s troubles saying that the company will stick to doing what it was doing. However, seeing the way RIM’s sales have been falling he now seems to have changed his views. He is ready to adopt strict cost cutting measures, job cuts, as well as strategic shifts. On 30^thMay RIM announced that it is hiring bankers J.P. Morgan and RBC Capital for strategic advice. Critics are commenting that this move is an indication that RIM is ready to put itself on the block, or maybe some parts of it might eventually be sold. Even if they stick to their beloved Blackberry 10 project and do come out with devices based on this OS, it is really hard to see how things could turn around for RIM from here. Well, for all we know Research In Motion might not even exist in another year or so!

East or West? Who should India side with, US or China?

India today finds itself in a very precarious situation. USA, the eminent superpower has been steadily growing its relation; be it through arms deals or helping India gain access to nuclear tech through the nuclear deal. On the other hand there is China; a country which feels it’s time has come to become the next superpower. Though China has always seemed somewhat hostile towards India; recent developments suggest that China has started to understand that the more India leans towards the US, the more difficult it will be for China to flex its muscles in Asia. Historically India has followed the policy of non-alignment, but those were the days of Cold War. Today’s India is a more outward looking nation, which itself wants to make a mark on the world. So is it possible for New Delhi to remain aligned in today’s world?

Leon Panetta, US Defence Secretary, on his recent visit to India said that US is keen on allowing India access to cutting edge military equipment and it is also considering joint development of arms and ammunition with India. Panetta was on a weeklong Asia tour to meet allies and spell out the new US defence strategy which seeks to shift US strategic focus towards Asia-Pacific. The US considers India as the linchpin in this strategy. US sees India playing a major role in strategic affairs of south and south east Asia. Both countries have been working hard on improving their military relationship. The annual naval exercise ‘Malabar’ has become one of the key areas of co-operation between the two countries navy’s. On the arms sales front, US knows how important a market India is for its companies. India happens to be the world’s biggest arms importer and plans to spend around $100 billion over the next ten years to modernize its armed forces. US realizes that arms deals are a key way to win India’s support and hence it considers this as a priority area of cooperation. US is going all out to woo India on this front by promising access to hi-tech arms as well as cutting the red tape.

On the same day when Leon Panetta, met with Defence minister A K Anthony; the external affairs minister S M Krishna was away in China holding talks with Vice Premier Li. Krishna assured Li, who will soon become the Chinese premier, that for India better bilateral co-operation with China is of utmost importance. The duo discussed trade and how economic co-operation between the two Asian neighbours can be increased. Krishna had met Li on the side-lines of the Shangai Cooperation Organization meet (SCO). Krishna also expressed India’s interest in joining the six nation SCO.  As India plans to give a major push to its infrastructure development plans it will need significant investment from abroad and Chinese companies might play an important role in this. India’s investments in South China Sea are also a reason why it wants to improve its relation with China. In a sign of growing momentum of bilateral ties, four Indian naval ships will dock in Shanghai. This is being seen as a positive step in building trust between the two nations.

Both US and China have realized that India will play a major role in tomorrow’s world order and hence both are focusing on improving ties with it. The US already has good relations with India, China on the other hand has had a very shaky relation given its hostile nature. Border disputes, trade imbalance and now the South China Sea issue, all these issues are possible impediments to any positive progress that the two nations might embark upon. Washington has already expressed its keen interest in helping India achieve its economic potential. Beijing, tough a little late, too wants to partner with New Delhi as much as possible. New Delhi, in the times to come, will have to take a tough decision. If it wants to continue with its age old non alignment policy then it may have to carry out a difficult balancing act between the two superpowers.

The curious case of Reebok India scam!

Reebok India controversy has been in the news for quite a while now. Adidas, the German sports goods manufacturer claimed a Rs. 870 crore scam in Reebok India. Now the corporate affairs ministry arm, Serious Fraud Investigation Office (SFIO) has taken up the case. The CEO of Reebok India, Mr. Subhinder Singh Prem and the COO Mr. Vishnu Bhagat, were initially asked to step down and later were alleged to have indulged in fraudulent activities. In a curious turn of events, both the officials seem to have claimed that Adidas had asked them to manipulate company accounts to ensure that the market value of Reebok India fell so that a significantly lower amount would have to be paid to the exiting JV partner. Adidas wanted to buy out Focus Energy’s 6.85 percent stake in Reebok India. Let’s trace back and try to understand this curious case.

On May 21, Adidas India filed a FIR against the two executives, which put several charges against them, the two most important charges being; running secret warehouses which held stock which was not accounted for on Adidas’s books and running a franchisee referral program even though there was clear instructions to them not to expand the store base further. In fact it is said that Adidas had sensed some problems in India operation in 2010 itself. Back then it appointed KPMG as to audit the business, the audit however, did not highlight any fraudulent practices.

To understand why Adidas asked Subhinder Singh Prem to step down, we have to go back to the start of it all. Reebok India had grown phenomenally, since 1996 when it opened its first store in Delhi. By 2012 it had opened up over 1,000 stores in India. It became the market leader in India; globally it had always ranked a distant fourth to Nike, Adidas and Puma. In India, Reebok pursued this aggressive expansion with local innovations in products, price points and distribution. One of key programmes run by Reebok India was the minimum return guarantee program, wherein the company offered to take care of the franchisees cost and in return capped their profits at a certain percentage. This program worked well for Reebok and it expanded aggressively in the country.

The problems started when Adidas Global CEO, Herbert Hainer in 2010, presented his Route 2015 wherein the focus was put on profitable growth. The repercussions of this were felt in India, as Prem and his team were asked to close down loss making stores. This was a dampener for team Reebok as it had so far been driven by the mandate to pursue growth. This downsizing turned out to be a major source of friction between Prem and Adidas top brass. The Reebok team felt that their current relationships with franchisees should be protected for at least some more time. Adidas on the other hand wanted to move quickly to a whole seller based distribution model. The cultural difference between the two organizations was also a source of conflict, Reebok with its American culture was more aggressive; while Adidas was more methodical in its approach.

In 2011, Prem was made the managing director of the Adidas-reebok combine. During this time the business was hit on multiple fronts. An excise duty on apparels, hike in value added tax and the rupees wild swings hit the business hard. Reebok ended its year with 650 Cr of revenue, lower than in previous fiscal. It was during this time that Adidas HQ, under its Route 2015 plan, started to tighten its control over the India business. The aggressive growth strategy followed by Reebok had ensured that it had a large amount of receivables on its books. This was also one of the reasons why Adidas wanted to downsize the Reebok business in a hurry. When Prem refused to align with Adidas HQ, they decided that it was time for him to move on.

In the meanwhile the investigating teams have raided quite a few warehouses in Delhi, some reports claimed that goods worth crores was seized from these; while some others claim that the warehouses were empty! The SFIO now in charge of the case has commented that the claim of Rs. 870 crores seems inflated and that the actual amount of fraud might be lower. Subhinder Singh Prem has filed two cases against Adidas in a Delhi court. The rumour mill is running hot and in all likelihood it seems that things will be clear only when SFIO completes its investigation. By that time the media will surely be fixated to this high profile corporate case.

Conquering Africa! Destination next for Indian corporates

Africa’s perception has been changing rapidly, from being an unsafe investment destination to being a place hard to neglect. Businesses are no longer asking the question,”whether to invest in Africa?” they are now more worried about the risks of not investing in Africa. That South Africa is now a part of the BRICS group; the group of largest emerging market economies; is a sign of the growing significance of African countries. The continent of more than a billion people has steadily grown at a rate of 5.6% from 2001 to 2008. Africa has large number of Indian nationals and Indian companies are tapping this population to enter into this continent. For aspiring Indian corporates all roads lead to Africa!

Bharti Airtel’s Zain acquisition is the biggest by an Indian company in Africa; however, Bharti is not the only Indian company raring to go out on all cylinders firing in Africa. Many large Indian companies are betting big on Africa. Godrej acquired personal care product manufacturer Tura for $33 million and is eyeing a stake in hair care company ‘Darling Group Holdings’. FMCG companies like Dabur, Marico, Emami are all present in Africa and doing well. The Tata conglomerate has been present in Africa since decades. Essar, another big Indian corporate house has been aggressively investing in Africa since 2008. It started out with its own mobile company in 2008, but has since then acquired mobile companies in Uganda and Congo Republic. Essar Oil, an Essar group has acquired stakes in Kenya Petroleum Refineries and State owned Zimbabwe Iron and Steel.

Karuturi Global, has become one of the largest private land owners in the world thanks to its investments in Africa. It started with a 15 hectare land purchase in 2005; for an investment of $1.9 million, to grow rose. In 2007, it bought one of the largest flower farms in Africa for an amount of $65.5 million. In the last two years, it has acquired 311,700 hectares of land in Ethiopia for an undisclosed sum of money.

Drug companies Cipla and Ranbaxy have been present in Africa for a long time now, helping African nations in their fight against HIV-AIDS by providing cheap generic drugs. Ranbaxy, which is present in Africa since 1996, now has around 10 subsidiaries in Africa. It also has two manufacturing units in the continent. Cipla has recently set up a manufacturing facility in Africa.

One of the main reasons for acceptance of Indian companies is the reason that India has had a long political relation with African countries. However, in terms business it’s the Chinese who are front runners. The Chinese have been investing heavily in the continent. The Indian government though late to act, recently has been sending many delegations to the continent to create business opportunities for Indian companies. One thing in India’s favour is its democratic set-up; unlike China whose Communist nature makes it appear as a threat. All Indian investment in Africa is not about business, some of it is philanthropic in nature. In 2008, during a summit in Africa, India pledged more than $500 million for development projects. It also pledged to increase by $2 billion its lines of credit to African countries.

As Indian companies grow, they have to look beyond the boundaries of the country for new markets and Africa seems to be their number one choice for the time being. For corporate India, conquering Africa is a top priority.