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.

UPA II: It’s time to act!

The rupee is sliding to all time new lows against the dollar, inflation figures seem to be getting out of control again, GDP forecasts are being lowered by all major institutions, and major scams are being unearthed in every now and then. Last 3 years of UPA II haven’t gone according to the script so to say. At every front the government seems to have failed. The 3^rd largest economy in Asia has not been doing its act. The government and finance minister would rather lay blame on external economic scenario (read Eurozone crisis) but all fault lies in the way it has run its own house; especially in handling its coalition partners. The economy stands at a precarious point and it’s time the government gets its act together by enacting reforms which are key to getting the country back on the path of high growth. ‘Policy paralysis’ in UPA II has cost us much more than just a rating downgrade by S&P.

5 key reforms that have been put on the back burner need to be enacted to ensure that we return to high growth rates. These reforms are:

FDI in retail

This is one reform that has caused UPA much headache. Although 100 FDI is allowed in cash and carry stores, the opposition and even key UPA allies have been against entry of global retail giants like Wal-Mart and Carrefour in multi-brand retail, via 49 per cent ownership. The government did try to push the reform but given the strong uproar against this reform it decided to pull back.

FDI in Insurance and Pension

There has been a case for increasing the cap in these sectors from 26 per cent to 49 per cent, however UPA has not been able to push these two financial bills. FDI in insurance will bring in much needed capital and best practices; while FDI in pension could diversify fund management.

Fuel Subsidies

Fuel price is a hot topic in India, a topic which is used by politicians often. While UPA II has made a move by deregulating petrol prices, it finds itself unable to do the same with Diesel, Kerosene and LPG. Fuel subsidies are a major burden on government finances. UPA II has committed in its budget that it will try to cap subsidies at 2% of GDP this year. This target would not be met if it continues to bear huge subsidy costs on these commodities.

New Tax Laws

Both the Goods and Services Tax (GST) and the Direct Tax Code (DTC) have gone past their implementation dates. The way state governments are opposing these laws, especially the GST; it seems that they will miss their deadlines again, unless UPA II is able to forge out some compromises.

FDI in Aviation

The state of the aviation industry surely makes this one a no-brainer. The mess that both government and private companies find themselves in can be solved to some extent by passing this key law. But again due to its political allies the UPA II finding it hard to push through this reform.

With major financial institutions lowering India’s GDP forecast for FY 2012-13 to below 7 per cent, I guess a strong enough message is being sent to the UPA II that this is the time to act to save the economy from slipping any further.

Why LinkedIn paid $119 million for presentation sharing site Slideshare

Jeff Weiner, CEO of LinkedIn; the social networking site for professionals, recently announced that his company will shell out $119 million for the presentation sharing site SlideShare. That’s lot money, you would say, for a site that lets people share PowerPoint presentations. So what was the value that LinkedIn saw in this deal? The deal is a strategic value addition to LinkedIn, being a social networking platform; its users will now have direct access to tools that will let them share their presentations directly on their profiles.

LinkedIn has approximately 161 million users globally. It’s the largest social networking site for professionals out there. SlideShare helps people share their ideas via presentations. Presentations are an important tool for professionals to share their business ideas, reports etc. Hence SlideShare fits perfectly into LinkedIn’s objective of providing professionals to share ideas and help them network. 9 million presentations have been added to SlideShare so far and the site had received 29 million unique visitors in the month of March. Considering these figures it’s easy to see how SlideShare is a strategic fit for LinkedIn.

You can think of SlideShare like a Pinterest for professionals. Pinterest lets people share their ideas through images. Similarly professionals share their ideas through presentations. Presentations are richer in content than simple text files. Adding presentation sharing service to LinkedIn will make the site more engaging for its users. The one thing that LinkedIn wants the most is to make its users spend much more time on the site. And this is where SlideShare will help LinkedIn generate that stickiness among its users.

LinkedIn likes to talk a lot about the number of members it has, and more so about the make-up of this membership. All of the Fortune 500 companies are present on its site, it claims. But when it comes to mind share of C-level executives SlideShare is ahead of LinkedIn.  SlideShare gets 40% more traffic from C-level executives than LinkedIn. With the purchase of SlideShare LinkedIn has bought over those hard earned C-level executives mindshare.

Lastly, SlideShare deal also fits perfectly with its recent purchase of Rapportive, a Gmail plug-in that ties up ones email id to their social accounts. So if someone sends a mail to me, I can see all of his social account names – Facebook, Twitter etc. right on the email. Rapportive buy will help LinkedIn spread its reach to all forms of content sharing be it emails or social networking sites and SlideShare. Considering all the above points I feel SlideShare seems like a natural fit for LinkedIn. Now we need to wait and watch how the guys at LinkedIn integrate SlideShare into the Linked platform.

FDI: The final hope for India’s aviation industry?

Aviation minister Ajit Singh predicts Indian airline companies to post a loss of almost Rs. 10,000 crores in this fiscal. Kingfisher Airlines has huge outstanding with oil companies as well as airports to the tune of 280 crore rupees. Out of the six main companies five are making losses (Only Indigo is profitable). Rising fuel prices, high taxes and fierce competition have made a huge dent in their profitability. Amid all of this, the voice for FDI in aviation has been growing stronger. Coalition politics however, has delayed the decision so far. But the real question is how FDI will help a sector so deep in trouble. Is it just about access to more financial resources or is that the business model of the industry itself is flawed. FDI proposal was put on hold last month due to inter-ministerial conflicts as well as pressure from coalition partners. However there are some positive signs that 49% FDI in the sector may see the light of day soon.

Government haste to move in the FDI proposal may be due to the serious problems at Kingfisher airlines, which threaten the viability of the company. On the surface of it, it all seems to be so straightforwardly simple; FDI would mean capital influx into the struggling companies, which would help them tide over their problems, thus moving the whole industry towards a more profitable future. The company which seems would benefit the most out of an FDI is SpiceJet. SpiceJet has reportedly received offers from airlines in Gulf and South East Asia. Other airlines too may get offers; after all India is a market where the number of fliers has been increasing in double digits for the last few years. Given the potential of the industry, foreign carriers would surely be interested to enter in the domestic market.

Not everyone however is gung-ho about the impact of FDI. Some even feel that it may not do much for the industry and in the near term might even hurt the industry. Experts feel that capital inflow (say into Kingfisher) will lead to redeployment of Kingfishers idle fleet. Air India too is closing its turnaround plan, which will see it ordering more planes. All this will take us back to the same problem which has been plaguing the industry – ‘Overcapacity’. Overcapacity is one of the main reasons, besides fuel prices, which is responsible for the sorry state of the companies. There are just too much of seats in the air. The Indian aviation industry boomed too fast and companies invested too quickly leading to the problem of overcapacity. Extremely fierce pricing means the yields on generated per seat are very low. The thin margins of these companies are further eroded by high fuel costs and taxes.

The country has seen benefits of FDI in many sectors, like banking, automobile etc. FDI is not just about access to funds, in addition to capital influx, foreign carriers will also bring expertise in airline management and best practices to the Indian Industry. Given the way traffic is rising in India, especially in smaller cities, the need to invest in aviation infrastructure is only growing. The financial state of domestic carriers raises a concern whether they will be able to invest in the needs of the growing market. A little help from foreign carriers in the form of FDI will surely go a long way in ensuring that India’s aviation industry continues to grow by leaps and bounds. Hopefully, the government will understand that this move is the need of the hour and expedite its implementation.

The story of Pinterest

Just when you thought that the world was getting a social media fatigue, Pinterest comes around and shows the world that it’s all wrong! In February 2012 Pinterest was announced as the fastest site to reach 10 million unique visits. In fact Pinterest is only behind Facebook and Tumblr in terms of the average time spent by people on the site. An average Pinterest user spends around 98 minutes a month compared to 2.5 hours on Tumblr and 7 hours on Facebook. What is the reason behind its phenomenal success?

Like many other social media companies, Pinterest too is located in the sunny Palo Alto, the Silicon Valley. The company founded by Ben Silbermann and Evan Sharp describes itself as –

Pinterest is a Virtual Pinboard.

Pinterest lets you organize and share all the beautiful things you find on the web. People use pinboards to plan their weddings, decorate their homes, and organize their favorite recipes. Best of all, you can browse pinboards created by other people. Browsing pinboards is a fun way to discover new things and get inspiration from people who share your interests.

It all started with an application called Tote that Ben was working on. The idea behind Tote was to create the first women’s fashion catalogue on Iphone. While working on the app Ben saw that women were grabbing particular items and tagging them so that they could see it a later time. He also saw that a large number of users were grabbing, tagging and sharing these items with their friends. He realized that people were sharing their tastes with their friends. This led Silbermann to create a tool for Tote users to organize and share their interests. This tool was instrumental in the incarnation of Pinterest.

 People who have been observing Pinterest say that what separates it from other social media sites like Facebook, Twitter or Instagram and Flickr is that Pinterest is more about interests that people want to share rather than what people want to brag about. Unlike facebook images which scream out ‘I was here’, ‘look at me in this designer dress’ etc. Pinterest images are more likely to be about what people want to do, like someone wants to buy a pair of shoes, so they pin its picture on their boards. In fact if you see the most shared topics on Pinterest you can see the way it differs from other social sites. Some of the most trending topics happen to be ‘Wedding ideas’ and ‘Food recipes’.

The way Pinterest has grown in just two years has caught everyone’s attention. People are debating whether it’s something to last or just another one of that newbie social media site that would eventually fade away. The way its adding new users, while still being an invitation only site is something incredible.

The big question, and challenge, however is how it will move into commercializing itself. Even now it’s earning handsomely through its affiliate links. But marketers all over are now asking themselves how they can use Pinterest as a marketing tool.  For companies to dole out those dollars there needs to be data that proves the effectiveness of its platform. A recent study at Emily Carr University has shown that about 1 in every 5 people who pin something will later go and buy that thing. This is a great conversion rate. Now it’s up to the marketers have to devise ways to reap the huge potential that this website offers. If Pinterest is able to successfully commercialize itself without alienating its users then its next phase of growth might be even more astonishing.

What’s wrong with Infosys?

Once touted as the IT bellwether, Infosys today, finds itself in a very precarious situation. Its revenue guidance for FY 12-13 is lower than the industry average. Peers like TCS and Cognizant on the other hand are growing strong. For more than eight quarters Infosys has been under performing. Anyone and everyone related to the IT industry has tried to analyse its problems and all have come up with different reasons. Even the Infosys management is finding it hard to pin down its poor performance to a particular problem. Will Infosys be able to correct its course in time? Or will it be overtaken by the likes of Wipro and Cognizant.

In the group of TCS, Wipro, Cognizant, HCL Tech and Infosys, Infosys has seen its share of revenue addition growth slip from 22% to 14.5%. Other than Wipro, all other have seen a modest to robust growth in their revenue addition. In the last five quarters the company has missed the midpoint of its guidance twice and in the last quarter it even missed out on the lower end of its guidance. This resulted in the stock price tanking by almost 13%!

Ask any critique and the first reason they will point out is the management problem at Infosys. The founders who are still at the helm of the company are being perceived as a major hurdle in the company’s growth. Post the 2008 recession there have been significant changes in the IT outsourcing industry. Critiques say that Infosys management has been slow to adapt to these changes. Infosys still is a very centrally controlled organization, which means that major projects do not get off the ground unless approved by the founders. On the other hand, peers like TCS went into management reshuffle post the recession. N Chandrashekhar became the youngest CEO of the company. At Wipro, Azim Premji, disbanded the co-CEO model and T K Kurien was appointed as the sole CEO of the company.

The firm grip founders have on the company also plays out on the way it carries out deals with its clients. For years Infosys was built on the notion of profitable growth. In a market where Infosys clearly stood out in terms of its quality and deliverables, commanding a premium was not a problem.  But today, as the competition has caught up with Infosys, customers have a easier choice to move on. Expecting a premium in a market where differentiation is very low doesn’t seem justified. However, the top management is still fixated to idea of high margins and that is how the company works out its deals. This has led to many a deals not materializing into orders. The founders however are in no mood to give up on the premium pricing.

Infosys says that cutting the prices is the easy way, and it’s not willing to go that way. Infosys 3.0 is a strategic vision that CEO Shibulal is trying to move the company towards. As traditional IT services become commoditized, Infosys is trying to move up the value chain to maintain its premium margins. It recently struck a deal with WPP, world’s largest advertising and media planning company, which will use a platform created by Infosys to manage its clients marketing campaigns. It also tied up with Bahrti Airtel for its mobile based money transfer service called Aitrel Money. In both cases Infosys will generate revenue based on the number of uses by WPP or money transfers by Airtel’s client, instead of the number of engineers required for the project. The company says that clients have found its new strategy as ‘extremely interesting’. However, it remains to be seen how well the management is able to drive this strategic change and whether there are many such deals out there for Infosys to maintain a healthy revenue growth.

Founders say that a quarter or two of low performance isn’t a reason to review the strategy. They believe that the company has always come up with the right strategy at the right time and has executed it well. Only time will tell whether the current board is capable enough of driving Infosys through the structural changes in IT industry. Critiques believe a change at the top is essential for Infosys to maintain its image as the IT bellwether. The debate, I believe, will continue for some more time. Till then let’s wait and watch how Infosys 3.0 pans out.

What ails Japan’s once formidable manufacturing sector?

The third largest economy in the world, Japan, was once the powerhouse of manufacturing; be it cars, machines or hi-tech electronics. Japan was at the forefront of manufacturing technology. Japanese firms were at the helm of global markets. Electronic firms like Sony and Panasonic; car manufacturers Toyota, Honda and Nissan were the pride of the nation. The decades of 70s and 80s were Japans decade of dominance in world trade. But the Japanese castle began to crumble and fall in the 90s; also known as the ‘lost decade’ of Japan. A strong Yen and rising costs made Japanese firms less competitive. Rise of neighbouring countries like South Korea and China further diminished Japans position of strength. Today, Japan’s manufacturing industry is in a crisis and questions are being asked about how it will survive in this highly competitive world market.

Japan’s problems are a plenty, some internal and some external. A strong Yen has been a pain for the Japanese economy since a very long time. Bank of Japans sporadic attempts to control the currency have been far from successful. The countries corporates also suffers from a peculiar cultural effect, called the Galapagos effect. Japanese companies tend to focus too much on the local consumers unique needs, and thereby end up making sophisticated and over-engineered products which can’t be sold elsewhere in the world. Its labour friendly laws also hamper local investment. Government policies have always favoured manufacturing sector, neglecting other areas of economy like financial services etc. Monopolies in power sector have resulted in high electricity prices, which dent the profitability of these firms. All these factors have contributed to the fall of the Japanese economy and the Japanese corporates.

Nowhere else has the problem been more significant than in the countries electronics industry. Sony, Panasonic, Hitachi and Toshiba had a combined market capitalization of $256 billion at the end of year 1999. By 2011 their combined market cap had fallen to $79 billion. This is a very alarming drop. The gravity of the situation is more evident when we look at how the competition has progressed over the same time period. Apple and Samsung had a combined market cap of only $51 billion. However at the end of 2011 their combined market cap had zoomed past $500 billion. Further, the operating profits of Japans major electronics companies will come to only 2% in the year ended March. This is dismally low compared to the double profits of Apple and Samsung.

Japanese corporates are known to spread their resources too thin over a number of products. That is a problem faced by many of these companies which were once leading innovators in their field today have lost product focus and competitive advantage. Overseas technology collaboration deals with Taiwanese and Korean firms have also been blamed for loss of competitive advantage of Japanese firms.

Many a steps are being proposed and taken to prevent further decline of the manufacturing industry. An idea that has been gaining ground is the merging of companies to form national champions which will have the scale and financial muscle to compete with global rivals. The recent merging of the small and medium sized businesses of Sony, Hitachi and Toshiba to create Japan Display is a classic example. The combined entity will sit on 20% market share which is more than the combined market share of Samsung and LG display. Plans are on to merge more such struggling units to create more national champions. But merging struggling units is not the only way forward.

Japan needs to take steps to liberalize its economy. It must open up its corporates to foreign competition. Its policies have long supported the weak corporates from falling. The extremely labour friendly policies need to be liberalized too. Japan has one of the highest corporate tax rates in OECD nations. Monopolies in sectors like power needs to go to reduce the input costs for the industry. However, what many observers of Japan feel is that there is need to bring a shift from manufacturing to service industry.  This is easier said than done, as manufacturing was brought about Japans miraculous recovery post the World War II. Even then, as the world economics change and major companies are going beyond their countries boundaries, seeking cheaper destinations of manufacturing, more and more Japanese firms will have to do the same. Statistics also say that companies which have moved part of their operations overseas are in a better shape than those who haven’t. Maybe going beyond manufacturing is where the future lies for Japan.