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DEC. 4, 2005
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 BT Special
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Interview With Giovanni Bisignani
After taking over the reigns at IATA, Giovanni Bisignani is in the cockpit directing many changes. His experience in handling the crisis after 9/11 crisis is invaluable. During his recent visit to India, Bisignani met BT's Amanpreet Singh and spoke about the challenges facing the aviation industry and how to fly safe. Excerpts.

"We Try To Create
A Joyful Work"
K Subrahmaniam, Covansys President and CEO, spoke to BT's Nitya Varadarajan.
More Net Specials
Business Today,  November 20, 2005
Smell A Scam?
Karnataka's land-allotment to IT firms is not unique.

This magazine doesn't know why Infosys needs 845 acres of land. Nor does it know at what rate Infosys acquired the land on which its leadership centre in Mysore stands (this is the one where Deve Gowda is hinting a scam). This land was allotted in 1997, when the J.H. Patel-led government was in power in the state.

What does emerge in a review of all land allotted to it firms across the states of Karnataka, Tamil Nadu, Andhra Pradesh and West Bengal is that the practice of attracting such firms by offering significant discounts is a common one. In West Bengal, for instance, where information on specific instances is unavailable, land in the Salt Lake (Sector-V) area, which is valued at Rs 1.5 crore an acre, is offered to it firms at Rs 66 lakh, a discount of 56 per cent. In Rajarhat New Township area, land is offered at Rs 1.5 crore an acre against a market price of Rs 2-2.5 crore, a discount of 25-40 per cent.

Is Retail Worth It?
The Man Reforming Our Administration
A Vote For The India Story
The Rural Cellphone Boom

There is no harm in cities and states accelerating the rate of their development by proffering subsidies such as this to companies. However, governments would do well to remember that Mumbai's mill land controversy has its origins in a similar practice followed in the early- and mid-1900s.

India's Hardware Hub?

First, it was finnish telecom equipment major Nokia that announced its decision to put down a manufacturing facility in Tamil Nadu. Now, it is the turn of Singapore-based electronic manufacturing services (EMS) biggie Flextronics to decide in favour of the state. The entry of EMS companies usually indicates the emergence of a local economy as a viable base for manufacturing (their business model revolves around cost and efficiency) and this case is no different. Tamil Nadu government officials say that a clutch of other investments, from smaller manufacturing companies, are in the pipeline. When that happens, Tamil Nadu will supplant neighbour Pondicherry as the centre of gravity of hardware manufacturing in the country (it helps that it Minister Dayanidhi Maran is from the state). With Chennai emerging the preferred destination for software firms, Indian and multinational, TN could well be the state to watch. That would only be in the fitness of things for a state that was the first in the country to draft an Information technology policy.

Advertising, Korean Style

A Hyundai ad: Doing it the Korean way

Even as global marketers closely follow and copy the model adopted by Korean chaebols in the consumer electronics and automobiles industries, Hyundai Automotive Group (which includes, besides Hyundai Motors, Kia Motors, INI Steel and other affiliates) has gone ahead and copied an age-old, and now outdated, communication model of some European multinationals.

By setting up Innocean, a company-owned advertising agency to handle its $300-million (Rs 1,350 crore)-plus global advertising budget, including that in India, Hyundai has done what Lever Brothers (Unilever now) did way back in the 1920s when it created an in-house agency, Lever International Advertising Service, later Lintas, now Lowe, and part of the Interpublic Group. Why, even India's fourth biggest agency, Mudra, started out as an extension of the Reliance Group.

The need to tightly control both costs and creative output, is being cited as the reason for this move. "Agencies have lost their identities and are only as good or bad as their people, who are constantly on the move," says Sanjiv Shukla, Marketing Head at Hyundai Motors India, on the reason behind the move. There's no telling whether Innocean will escape that trend.

For the record, Hyundai did have an in-house communication unit in South Korea, Diamond Ad, which was sold off to UK's Cordinat Communication Group (which was subsequently acquired by WPP in 2003) in 1999. Even after Hyundai Motors spilt with the larger Hyundai Group in 2000, Diamond Ad continued to be the automaker's agency in Korea till last year.

Most Korean firms do seem to prefer an in-house agency. Samsung owns Cheil and LG likes its advertising to be handled by LG Ads (now owned in most markets by WPP). "In the last four-five years, as Korean companies went global, their agencies have simply followed them," says Viren Razdan, Senior Vice President, Cheil Communications. Only Hyundai has gone the whole hog and given Innocean (a creative-only agency) all its work in India. Cheil still handles just about 70 to 75 per cent of Samsung India's ad business, with Grey Global being the outsider here.

Is Retail Worth It?
Another IPO, another high valuation, but what's the secret?

Every stock market boom sees companies strive for maximum pricing in their IPOs (initial public offers). The current boom is no different. The instances of Jet Airways and Suzlon Energy that commanded significant premia for their stock during an IPO, yet managed to be over-subscribed, are still fresh in the minds of most investors. Piramyd Retail, which has priced its issue in the Rs 120-140 band, is another such. In a recent report on the sector, Citigroup maintains that retail stocks are overvalued. "High sales and earnings growth expectations, scarcity premiums, and acquisition premiums are being built into current retail stock valuations," it states. Retail stocks have seen their prices rise some 300 per cent in the past 12 months. "All this has been made possible on account of few companies in the sector being listed, which may not be a sound enough reason to justify that kind of valuation," says the head of research at a Mumbai-based brokerage.

So, is the Piramyd stock worth the asking price? Not really, says a report issued by equity research firm BRICS that has given the stock an 'Avoid' rating. One reason for that is the company's low net profit in the first half of this year (Rs 50 lakh). Still, given that stocks in the sector still enjoy a scarcity premium (one that will rapidly erode as more companies in the business tap the market), the Piramyd stock is likely to do very well.

The Man Reforming Our Administration Ommission

ARC Chairman Moily: A reformist

When a man says he believes in "rightsizing, not downsizing" and that the "effective use of technology is key to administrative reforms", you know he is serious about his mandate. The man is Veerapa Moily, the former Chief Minister of Karnataka, and he has been appointed Chairman of the second Administrative Reforms Commission (the first one dates back to 1967 and was headed by the late Morarji Desai who went on to become India's Prime Minister). Moily says his commission will look at everything from improving the organisational structure of the government to facilitating public-private partnerships and insists that he took up the job only after India's PM Manmohan Singh assured him that his "recommendations would be implemented". Is this just another panel or something that will expedite administrative reform? Only time will tell.

A Vote For The India Story
The Board of India Today Economists is bullish on growth.

The Great Indian Saga: Get, set and go, says the BITE panel

The Board of India Today Economists (BITE), a heavyweight panel comprising five of the country's leading economists, have given the country's economic growth story a resounding vote of confidence.

Says Ajit Ranade, Chief Economist, the Aditya Birla Group: "I am confident that the consumption growth is sustainable." His logic: credit offtake has been growing at 30-35 per cent a year for the last two years, an all-time record. As proof, he points to the turnaround in the FMCG sector, which is increasingly being driven by rising rural incomes.

This is important, as India's growth is being fuelled primarily by domestic consumption, which accounts for over two-thirds of GDP-unlike China's investment and export-led growth. "Incomes are growing at around 7-7.5 per cent per annum; therefore, total consumption expenditure is likely to grow at over 6 per cent. The EMI story has made things affordable, limited one's cash outflows and positively impacted businesses like durables and automobiles," says Siddhartha Roy, Chief Economist, Tata Group.

This, despite an imminent hardening of interest rates! "Rates may rise about 25 basis points, but I don't think this will have any impact on consumption," says Bibek Debroy, Director, Rajiv Gandhi Institute of Contemporary Research

But Subir Gokarn, Chief Economist, CRISIL, warns of a possible consumption bubble developing. "Housing is not a risk-lending business in India because the average home owner invests 30 per cent of the value himself. But the chances of defaults will rise as banks become more aggressive, and the home buyer's equity drops to 5-10 per cent." Shankar Acharya, Member, 12th Finance Commission, too, sounds a note of caution. "People are increasingly shying away from publicly provided facilities such as education and healthcare in favour of private facilities, for the simple reason that the former does not work. But this is an area of concern as the absence of publicly funded services hurts the poor who do not have other options." But despite these caveats, all the panelists were unanimous that the GDP will grow at 7 per cent at least. The discussion was moderated by Jairam Ramesh, Congress MP and a veteran economis.

The Rural Cellphone Boom

Every market reaches a point of saturation at some point in time. At that stage, companies need to think on their feet and identify new markets quickly. The case of wireless telephony in India is perhaps the most interesting, with urban India reaching comfortable levels of penetration and the rural hinterland waiting to be tapped. "The growth of wireless subscribers from rural India is sure to be the next big story," predicts Bhagwan D. Khurana, Group President, Reliance Infocomm. His company has rolled out its services across the country and Khurana himself admits to being surprised by the way some of the markets have responded. So, where did the surprise come from? "From places like Bihar and Orissa," he points out. According to T.V. Ramachandran, Director General, Cellular Operators Association of India (COAI), almost all urban centres have been covered. That clearly leaves 750 million residents of semi-urban and rural centres as a potential market. "It is most certainly not a case of these people not being able to afford the service. It's just that they are waiting for the service to reach them," he explains. That's already beginning to happen.




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