The Chairman of GE speaks out

Yesterday, NDTV aired an interesting interview with the Chairman and CEO of GE Global Jeff Immelt .The central theme of the interview was his view on India and its development process and how he sees GE contribute to the country in the long term. In this post I capture salient points of the interview which I believe would be of great interest to my readers

The development trajectory

Immelt believed that in the last twenty years the very nature of our democracy has changed . In the first forty years post independence the voters would tend to vote incumbents back to power 80% of the time , there was a premium for incumbency…..however in the last twenty years the trend has reversed when 80% of the incumbents get voted out in every Lok Sabha elections . This according to him is a distinct evidence of the growing maturity of the democracy. Additionally the head honcho of GE opined that our development agenda was based on the development at the Lowest Common Denominator, he believes that this paradigm is changing but would like to see it change faster. According to the GE boss while there has been growth and development in the last few years, its important for politicians to recognize that that infrastructure is the most important element of our development. The current state of our infrastructure is far from world class and according to him a greater degree of focus should be given to augmenting infrastructure across the length and breadth of the nation. Immelt believes that infrastructure is the key to our development and urged the decision makers of the country should spend a portion of its forex reserves to build infrastructure in the next 5-10 years. He was of the opinion that if the UPA government did nothing else but concentrate on infrastructure, it would have set a pace of development that would be a matter of envy for the western world.

India vs China

Immelt’s India visit was immediately preceded by his GE China and in that context he outlined the differences between the two nations

a) China operates as a centrally planned economy where 5 years plans are driven with rigor across the country , we are much more democratic and as a result at times , it far more difficult to implement a national agenda …a price that a democracy has to pay

b) China is good in its planning and execution of its economic reforms, while its weaknesses lie in the managerial pool and its financial systems. India on the contrary is just the reverse; it has an inefficient central system, but a great managerial talent pool and a robust financial system. The GE chairman complimented the nation on its ability manage the financial reform process far better than China

c) China has a far superior infrastructure than ours, its investment in infrastructure has been USD 80 billion which has aided its development processes.


GE and its plans in India

Immelt believes that GE is going is here for the long term and would participate in its development process as it has done in the last 100 years. He sees GE play a significant role in the infrastructure sector as and when the government wants to fast forward its plans there . GE would be particularly interested in participating in financing large projects. GE has a role to play in aviation and the engineering sectors as well and easily expects fresh investments of USD 2 billion within the next five years

In conclusion

Jeffery Immelt believes that our development story is incomplete and unsustainable without a more concentrated effort of infrastructure. In this interview, he harped on the theme of infrastructure almost throughout of the interview. If the CEO of GE feels so strongly about infrastructure I am sure that the PM and his team must consider putting it into the national priority list , and it would help if we stopped diverting our energy into issues like reservations and take a harder look at our infrastructure issues….Mr Singh are you listening !!

Schedule Tribe Status for the Gujar's !!!

I have been following the recent agitation of the Rajasthan Gujars for Schedule Tribe status . Lead by the Gurjar Mahasabha the agitation has already claimed fourteen lives in Dausa and has a potential to become full blown conflict . In this post I try and examine the rationale of their claims . To my reader I must confess that though I am not a professional historian ,I do have a sense of history and the caste system of India .

The SC/ST status is granted to group's of people who were considered outcastes in the 4 tiered Hindu caste system , and by virtue of being in the bottom of the social pyramid have been left out of any form of development generations. The reservation processes is an national intervention that aims at providing economic relief to these deprived communities . In this context it would be worthwhile to examine the veracity of the claims of the Gujar community for SC/ST status

History

According to historians the Gujars can be traced back to the Huna invasion of India , some historians beleive that the Gujars are possibly the descendants of Hepthalites (White Huns) . The Gujars are in large numbers in Pakistan as well (famous bowlers Shoaib Akthar and Mohd Asif) are Pakistani Gurjars....however trivia aside ....the ruling clans of Rajasthan like the Prathihara's , Paramara's ,Solanki's , Bhati's , Chauhans , are classified by many as Gujars . The Prathiharas were rulers of the large kingdoms in Northern India (6th to 11th century) and according to most scholars they were Rajputs . Similar controversies are there for the Paramara's , Bhati's and Chauhans , while one school of historians believe that they are Rajputs , there are many who argue that they are Gujars of Hepthalites descent . Whatever the case maybe the Gujars are classified into the Khastriya (warrior caste) category of the Hindu caste system .I can say with great degree of confidence and conviction that most Gurjar clans have been rulers and not serfs and therefore fair to assume that the Gujars have not been the bottom of the pyramid so far as the Hindu society is concerned .Additionally some Gujar groups like the Gaur Gujar's in Central India are classified as Brahmins -the highest caste in the chaturvarna (4 tier) Hindu caste classification .

Conclusion

My limited knowledge of the caste system of India , convinces me that the Gujars are not eligible for SC/ST status in any part of the country . There might be some confusion about some clans in Rajasthan (some people think they are Rajputs while others classify them as Gujar's) , but they are certainly not the bottom of the Hindu caste system . I am really curious to know the basis of their claim for ST status in Rajasthan........

Outsourcing slowdown-Point -Counterpoint

Consulting firm TPI came out with an interesting set of statistics today ,that build on the outsourcing backlash theory. According to TPI the first quarter of 2007 has started with softening of IT outsourcing awards .

Contracts more than $ 50 million in the US has come down in number and value terms as compared to quarter one of 2006. The 27 contracts awarded in the Americas during the first quarter represented the lowest awards since 2001.According to TPI the trend in the Americas mirror a global slowdown . In this quarter 68 outsourcing contracts (more than USD 50 million) were awarded down from the 99 deal in quarter one of 2006.In addition to this the Total Contract Value (TCV) in this quarter was the lowest seen in any first quarter in the past five years , with the value of deals getting smaller in yearly USD terms . However the good news according to TPI is despite a slow start the overall projections of do show a modest growth in the annualized revenues for 2007 , as compared to the last year .

Implications for the Indian IT Industry

As I had reported earlier , the Indian IT industry is buoyant about its prospects and none of our leaders see outsourcing softening in the near term. However if the data that TPI presents is true , the implications on the industry , the stock market and the Indian economy is pretty severe and according to me they as follows :

a) Deals greater than USD 50 million are extremely important for the survival of the Indian IT sector ,the reason being , that these are multi year contracts and provide the stability and growth of the industry . One could infer that reduction in these deals would mean that organizations are engaging in shorter-term deals with smaller contract values because they want best-of-breed solutions,” and TPI Managing Director Peter Allen says.....“We are advising our clients to strive to align their sourcing needs with their business strategies and to consider the maturity of the service provider marketplace.” This is a pretty significant change in the customer mindset , implying :

1. Need to start ramping up best of breed solutions (an area which is probably the greatest weakness of our industry...) , we have focused on scale and cost for too long and if the sudden shift happens from scale to IP lead solutions it might affect our ability to deliver and consequently revenue streams .

2. Global Delivery is not about delivering from multiple Indian locations a point I made in my post of 9 April , time to market and providing efficiencies (other than cost arbitrage is also important ..) . Infosys recently announced its multi million dollar expansion plan in Mexico which is a step in the right direction , but is Infosys a rare exception in creating a truly global delivery model ??

b) The Indian stock market as we are aware has a high weightage of the IT sector , an under performing IT sector would be disastrous for the economy as a whole and the Resurgent India story can come to a grinding halt.

As an Indian I hope things would improve from the next quarter and the confidence of the Murthy's , and the Ramadorai's of the world is reflected in the next quarters results ....and Alan Binder is proven wrong ......watch this space ....I am going to track this story as well ........

Reservations -The Real Debate

The debate on the reservations for backward classes has suddenly been accentuated with the Supreme Court's stay order. The BJP blames the UPA Government for not having put the case to the judiciary well (an upper caste ,right wing party also wants the share of the OBC vote you see,…..) , the DMK is shocked - what happens to its Adi-Dravida vote bank , the CPI(M) expressed grief –after all it has been the messiah of the downtrodden in West Bengal …and by implementing its strategy of rampant industrial strikes has succesfully crippled the state to an extent that people who had decent jobs even a decade and half ago have become downtrodden , so that their supporter base continues to increase …..and finally Mr VP Singh’s comment “ all people issues are political…and therefore the reservation issue is bound to be politicized… is evidence enough that all the players in the political firmament of India want a share in the electoral pie of the reservation game .

The reservation process as Mr Arjun Singh would like us to believe is a surgical correction to bring the Other Backward Castes (OBC) into the limelight by providing opportunities for economic and educational growth…..to the extent of sacrificing meritocracy as a principle .

I would like to draw the attention of my reader on some fundamental issues of reservation as a social engineering process.

a) One cannot argue that some form of subsidy needs to be given to backward and poorer sections of society, so I agree that reservation in some form is probably not a bad thing.

b) Poverty in India is endemic ,and it's a flawed assumption to believe that if one is backward one has to be poor or vice -versa . I am not too sure if there is a direct correlation between poverty and being backward . The protagonists of the reservation process demand reservation based on this fundamentally flawed assumption......I have lived in Karnataka and some of my Vokaliga and Lingayat friends are extremely affluent in spite of being OBC’s , similarly in Maharastra -where I presently reside ,there are many examples of rich OBC’s. A supporter of the OBC reservation would like to dismiss this by saying that yes there is a creamy layer in the OBC’s and we can exclude them from the reservation process …however the implementation of reservation is incomplete if its restricted to the OBC’s alone …which raises the second question , what are the principles of reservation in our country ..!!!. I am tempted to believe that the design of the reservation program is not to empower people of weaker sections (both OBC’s and non-OBC’s) but a diabolical attempt to build a vote bank for political parties. Mr VP Singh- The Raja of Mandya (and now the Czar of Mandal…) when asked this question responded by saying “I agree , there must be 10% reservation for upper castes as well….” Thank you Mr Singh by being so considerate, but what is the basis of this 10% ….and obviously Mr Singh would have no rationale to offer..!!


The Role of Judiciary in the process

After the Parliament's approval of the OBC reservation, I had given up all hope of redressal and rationale in the system. I was extremely agitated that neither the media nor the public was asking the right questions of our elected representatives (though I admired the resistance that the Youth For Equality-YFE provided) . However my faith in Indian democracy has been rekindled after the Supreme Court’s interim order asking the UPA government to provide more data before the issue is closed once for all. The SC judgment opined that the last caste base census happened in 1931 and has requested the government to come back with more contemporary data with statistics that correlate poverty with caste backwardness. I am hopeful that there are enough checks and balances in our democracy which will ensure that the creative minds in the UPA government cannot conjure up data which proves that one is poor because he is backward by caste.

I have written about the implications of the reservations in a previous post which might be of interest to you as well

I continue to live in hope that good sense will prevail….are you as hopeful as I am?

Citigroup to move jobs to India- Time to rejoice ??

The New York Times carried a report today (27 March 2007) about Citi's plans of a major financial restructuring effort . Approximately 26,000 jobs will be either cut or reassigned to manage its operating costs . A large part of the reassigned jobs are expected to come to India . Citi India already has a large presence with 22,000 people which is supposed to grow even further with this announcement .

Charles O. Prince III Chairman and Chief Executive Officer Citigroup quoted...“We will consolidate and simplify our back offices around the world,....Traditionally, India has been a beneficiary of that.”

Most of us will be elated with this announcement , more global jobs coming into India , more employment opportunities for us ....however I would present a slightly contrary point of view .

a) Moves like this have an impact on Brand India ( ....Back-office destination of the world ) ...more and more corporates look at India as a source of cheap labor (which at one level is good , but does not auger well for national competitiveness in the long run)....I am sure India is not interested to be merely a back office operations of entities that want to manage cost....and more so when we have such a vibrant talent pool

b) India gets prominence through announcements such as these , I would like to know the extent of international media coverage on the Tata-Corus or Hindalco-Novelis deals . .....both the stories were covered by the New York Times ....but in a very matter of fact announcements.

As a nation we have lot more to offer than back office outsourcing ...don't you think so ? , and are you still happy with this announcement ....do let me know

Tata-Corus Deal : Expert Opinion

I am delighted to post the view points of Mr Joy Kumar Jain -Executive Director , PricewaterhouseCoopers -India on the Tata-Corus deal . In the interview Joy talks about the naunces of the deal and its implications

Profile:

Joy Jain is a brilliant Chartered Accountant who rose to partnership of PwC at a very early age. Joy specalises in valuations of business , share valuation, valuation of property, plant and equipment, valuation of intangible assets, purchase price allocations Financial due diligence reviews, corporate restructuring

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Interview

Q1 –Joy , what do you think are the drivers for the Tata –Corus deal , from a strategy perspective?

Steel Industry globally is still fragmented. The top five steel makers control only about 20% of the global production as against Aluminium where the top five producers have 40% of the market share. Transactions like this would strengthen the ongoing consolidation in the Industry. It is clear that further consolidation will soon take place. The cyclical nature of the industry means that low-volume, high-cost producers have to generate sufficient cash or create a strong enough borrowing position during market peaks to survive the market troughs. The sector is still very fragmented and cannot therefore control its raw materials costs or the price of its finished goods. Arguably, the only way to counteract the situation is to acquire other steelmakers and become a larger player on the global scene, thereby obtaining greater bargaining power with suppliers and customers, and increased operating flexibility. It will ultimately ensure they are better able to survive, should iron ore prices keep soaring. Further, there are parts of the World which have surplus steel production and other parts of the World which do not have adequate production capacities. Such mergers will enable companies to freely move steel from surplus production areas to shortage areas. The need to consolidate, reduce over capacity and to secure greater market clout will only accelerate the process of mergers and acquisitions in the steel industry.

Additionally, as Corus has offices in various parts of the World, the Corus acquisition will boost Tata Steel’s reach in the global market and providing access to customers in Europe and elsewhere, thereby boosting its exports out of India. Higher Exports would mean higher utilisation levels resulting in higher operating margins for Tata Steel. Corus is also likely to gain with the deal as they would have access to untapped iron ore reserves of India. Both, Tata Steel and Corus will be able to draw on each other global facilities which will improve their attractiveness to institutional and other investors leading to better valuations. Additionally, Tata Steel will benefit from the rich R&D facilities and a number of patents owned by Corus. The deal makes Tata-Corus combined entity the fifth largest steel maker in the World. This will improve Tata Steel’s bargaining position both with the suppliers as well as with its customers. Further, additional synergies can be secured by integrating the operations of both the entities to the extent possible.

Q 2 – Well all of us have read about the deal in the newspapers but am not too sure if we understand the nuances of the deal from a financial perspective. What according to you are the three top features of the deal which differentiates this one

Per Tata Steel, it has paid a premium of 49% over closing mid market share price of Corus on October 4, 2006 and a premium of over 68% over the average closing mid market price over the twelve months ended on that date. Further the price paid also represents a significant premium on the PE multiples prevailing in the metals industry. The price paid is a factor of synergies that Tata Steel perceives it will be able to obtain pursuant to this deal. Further, the total deal value is much lower than what it would have cost Tata Steel to set up equivalent production capacity today.

Another element of the deal is the confidence that International banks/investors now have on the Indian Corporates. This deal requires Tata’s to raise a huge amount of debt to buy out the shares. The fact that they have been able to put the financing in place for such a large amount differentiates it from other deals.


Q 3 –What are the implications of this deal of the Tata Steel balance sheet and its profitability

While there would not be a significant implication on Tata Steel’s stand alone balance sheet, the deal would make its consolidated balance sheet very large. On a consolidated basis, the leverage/debt gearing would also go up substantially. However, they may not be a significant increase in consolidated earnings as it would depend upon the accounting and amortization of intangible assets acquired by Tata as a part of the deal.


Q4 – The media believes that it is indeed a landmark deal, what are your views on the same, what are the key things that the Tata’s need to be wary of to derive maximum value from the deal?

This is indeed a landmark deal from the point of view of Indian corporate history though relatively small in the global M&A space. Tata’s will have to ensure that they obtain maximum synergies from integrating Corus’ operations with theirs as well as make the best use of R&D facilities of Corus to derive maximum value from the deal. Also they will have to ensure that they have the confidence of workers to obtain maximum value. It may not be easy for an Indian company to obtain confidence of European Workers. However, Tata’s have the experience of Tetley acquisition with them which will help them in this regard.

Q-5 – What are the implications of the deal for the country (India) , what does these large deals do to the brand of the nation, (Brand India ).

Deals like this definitely catapult the nation into top of the mind recall for various corporate honchos internationally. It make them sit up and take notice of the country. Further it sends out positive signals since the country is no longer dependant on inward remittances but is actually investing overseas.

Q-6 –Of late , India has been known more for its IT Services and BPO, does this deal change the face of Indian manufacturing ?

The deal does not really change the face of Indian manufacturing. Of late, a lot of Indian companies, particularly in auto components and pharmaceutical sectors have been making overseas acquisitions. The net FDI outgo from India in 2006 was higher than the net FDI inflow into the country in that year and these numbers are excluding Tata – Corus and Vodafone-Hutch deals.

India would need to improve manufacturing’s share in its GDP to continue with or exceed the 8% growth rate as it is only manufacturing sector which has the capability of providing both direct and indirect employment to a large mass of people along with various spin-off benefits.


q- 7-What people capabilities are required to derive maximum value from deals such as these


Companies require adequate management bandwidth to be able to manage such large acquisitions. Management needs to be capable of completing the integration quickly and as mentioned above get the confidence of the local management and workers to ensure maximum value from such deals.

India Shining !

No , not another NDA campaign ....as i read my google alerts on the IT industry today morning (I track Infosys , Wipro and TCS -more as a hobby) , it occurred to me that the changes we have seen in the last ten years are non trivial ,but as a nation we don't seem to have the ability to celebrate the successes that we have achieved .

The journey of economic reforms , deregulation , privatization has been indeed unique , the gradual shift of the IT services industry from a cost arbitrage model to a more solution based services model validates the offshore story and truly levels the playing field . And not only IT , the last couple of years has seen a resurgent India as far as the manufacturing sector is concerned . Indian manufacturing has come of age and from a Hindu growth rate of 5% , top conglomerates in India are clocking 15-18% CAGR . Could we have imagined a Tata -Corus deal 10 years ago , probably no , or even the takeover stories which are going around from the Aditya Birla Group .

With the reforms in the economic environment , we have seen reforms in the democracy as well , the good work done by the Election Commission , the fact that we have a more clean electoral process are indications of a nation on the move . In my formative years , I cursed myself for being born in India , the land of potholes , load -shedding , poor quality of life, no opprtunities ,but and in the last 10 years , i have grown to respect my nation , my people and today , I am a proud , confident Indian . As I experience my son grow up and see the way he looks at things , I am sure the next generation is being set up for success ...

While there are so many things that are still in it embryonic stage of development as far as we are concerned ,ex- the infrastructure , good governance at the village level , etc etc , but as an Indian , i feel proud of what we have and am not bogged down with what we don't have at present , because I know for sure that we will get there sooner or later and for me India is truly shining ...........

Jai Hind

Education and the Resurgence of India

For those of us who follow the media and the latest campaign launched by Times of India ( India poised http://indiapoised.com/) and also media reports that we will overtake the US as the world’s second largest economy by 2050 and are feeling great about it , here is something to be worried about - Our Education System .

Most of us will agree that our education infrastructure at the school level is abysmal in the rural and semi-urban locations across the country, however many of us will not suspect that there might be something wrong in the schools that our children go to in the metro cities. The elite in the metro’s send their children in the Bishop Cotton’s at Bangalore , the Bombay Scottish at Mumbai , or a St Xaviers in Kolkata and feel that the kids are growing up to take on this competitive world , however according to me some of us are in for a rude shock !

This post focuses on the fundamental pillars of our education system and is based on my experiences of schools in the big cities ; I have reasons to believe that what is applicable to the schools in the metros applies even more to the rural and semi-urban school system.

Pillar One – Rote Learning

Rote learning is a learning technique which avoids understanding the inner complexities and inferences of the subject that is being learned and instead focuses on memorizing the material so that it can be recalled by the learner exactly the way it was read or heard. In other words, it is learning "just for the test". Source –Wikipedia

The definition of rote learning and the points highlighted above are the fundamental challenges of our education system. A child as a learner is told to get the best grades by his parents , and the way to get the best grades is to “recall and reproduce ” ,what s/he has learnt in the class room . This coupled by a teaching process which is again based on repetition of a concept without understanding the nuances perpetuates this behavior .

I am myself a product of rote learning , went to a rote learning factory called South Point High School in Kolkata , and those of you who have heard about the school would know that it produces the best academic results at the Secondary and Higher Secondary levels in the West Bengal Board (at least that’s the way it was in my times) . Many years after I left school and was working as a consultant in a Big 4 firm , I realised that the many years of education was great to “recall facts” but not good enough to understand the reasons or causes or even describe a phenomena in life . This sense of inadequacy lead me to explore further and in the process I discovered that my entire education has only helped me filling my brain up with megabytes of facts which I could recall at will , but could not help me figure out causal or systemic relationships that are the required to understand the world around us . I knew the law of diminishing returns , I knew the concept of elasticity of demand , but for the life of me , could not explain a real life phenomena …..sounds familiar ??.

As years passed by , I became a manager , I discovered that I had made it to the grade being a hard and honest worker , but did not have an additional lens to look at the world or provide insights to my co-workers , this lead to another belief …what good was my learning at school , and how did it help in my development as a professional . I still grapple with these questions , which heightens my sense of inadequacy …………

As a Management Development Professional , my experience of facilitating adult learning in India has lead me to the belief that most of our managers have this problem , they can recall facts but their perspectives are very narrow (which in technical terms could be defined as functional –know your set of job routines well ) and therefore it becomes a really difficult challenge to build a larger perspective in them or develop systems thinking abilites (simply put to look at events from a cause –relationships perspective)

To summarise I would like to quote the United Nations Arab Human Development Report for 2004 , wherein researchers claim that rote learning is a major contributing factor to the lack of progress in science and research & development in the Arab countries.

If it is true for Arab nations could it be true for India as well !! ,

Pillar Two- The Examination System

The design of the examination system perpetuates the rote learning behavior , and these two pillars support it each wonderfully to create the academic system that I am describing in this post .

The examination system is designed to test you ability to recall and reproduce a fact , and based on the powers of memorization and reproduction a learner’s ability is evaluated . At some level one many argue that memorization maybe a test of cognition , however even if it were so it does not help in developing the powers of concept synthesis or abstraction which a rote learning based testing system does not support .

The grade system has a very big implication in life , if I don’t get good grades in school , I will not get admitted to a good college or get to study in a good stream , and if I don’t get good grades in college , I will not even been called for an interview in good companies like Infosys or the like . Therefore as a child , we condition ourselves for the ultimate outcome get a good job and in that environment the current education system grows stronger and stronger.

What do we do going forward

I may not have all the answers of what needs to be done , however , I can leave the readers with some questions .

a) Discovery based education – Can the primary and secondary school curriculum be a judicious mix of rote learning and discovery learning . Discovery based learning is the opposite of rote learning , it takes place in problem solving situations where the learner draws on his own experience and prior knowledge to discover the truths that are to be learned. Discovery learning is a method of instruction through which students interact with their environment by exploring and manipulating objects, wrestling with questions and controversies, or performing experiments. Its important to start the education process of every child in a discovery mode . I send my 5 year old to a school which practices discovery learning . I admitted my child Neelabjo to this school a year ago hoping that he would learn differently , and I was pleasantly surprised when he came to me one day and told me that he went to a bank with his class . I explored with him further and he told me that his teacher had taken their class to the bank and he went through the locker room , the account opening process et al. My son now knows what a bank account is and what is kept in a locker and he can narrate some parts of rudimentary banking processes to me in reasonable amount of detail . I believe that discovery learning methods create a spirit of inquiry in every learner and if in our formative years we ensure that all children go through discovery learning , it probably creates a mental model to look at the things around you will in a different light .

b) Investments in the primary education system – I pay education tax every year , and would like that money to be utilized more in creating a primary education infrastructure across the country . While the Union Minister of HRD is busy designing interventions to promote reservations , I am not too sure how much focus he has in the improving the infrastructure of education .
c) Corporate Recruitment processes- I would encourage my colleagues in HR to look at alternative means of testing competencies rather than just college grades , can we also place a premium on candidates who ability to connect things systemically higher than the ability to reproduce facts .


In conclusion

I believe India’s competitiveness lies in its intellectual capital , however we could be fast losing the advantage if we continue the way we do things . I wanted this post to raise some questions , hope you will reflect on what I had to say and in your own way help your child to discover things better so that s/he becomes a stronger citizen of this nation as we march towards a great future ...jai Hind