M&M's Mahindra (left) & Renault's Ghosn : A blockbuster tie-up

In September this year, when Osamu Suzuki, Chairman, Suzuki Motor Corporation (SMC), came to India he let out that Nissan had struck a deal with Suzuki that would lead to big things for Maruti in the future. Unfortunately for him, two months down the line and several hundred phone calls between Paris and Tokyo (and, no doubt, between Mumbai and Paris), Renault, which owns a 44 per cent stake in Nissan, finally decided that since it already has an agreement in place with Mahindra & Mahindra (M&M) to manufacture the French sedan Logan in India, it made sense to extend it.

Therefore, on November 9 in Paris, Carlos Ghosn, CEO of Renault, sat on a dais with Anand Mahindra, Vice-Chairman and Managing Director, M&M, to announce a blockbuster deal that would see the establishment of an all-new manufacturing plant in a 50:50 joint venture between Renault and M&M (as opposed to the current 51:49 Mahindra-Renault JV for the Logan which is expected in India next year). As Ghosn announced, the new JV will have a capacity of 500,000 units by 2012 and invest upwards of $1 billion (Rs 4,500 crore). The plant will initially produce cars from the Logan range but there was the possibility that other Renault products would be brought to India as well.

The new plant, which is expected to start production by 2009 with an initial capacity 300,000, will be supported by a powertrain plant that will be fully-owned by Renault. The powertrain facility will not only provide engines to products from the car plant, but also to other Renault plants in the Asian region. However, there was no talk of using this new car plant as a hub, rather the plant would cater to domestic consumption and the cars would be sold through the existing Mahindra-Renault JV. There were no specifics on how the existing jv would be impacted by the new deal.

However, Ghosn specified that Nissan-which is not continuing talks with Suzuki, but will continue with the agreement to source 50,000 units of Suzuki's new small car (based on the 'Splash' concept) from Maruti-is studying the prospect of also involving itself in the new JV. A final decision is to be made within four months. "The success of this partnership is scripted within the India growth story and Mahindra and Renault's shared vision for its customers," an elated Mahindra told reporters. Meanwhile, Dalal Street was already speculating about a possible merger of the two JVs.

-Kushan Mitra

Want Rent, Get Customers
Malls are starting to link rentals to store revenues.

Shopping boom: New model ensures revenues for all

Here's a typical scene out of Indian malls: Papa shopper, mama shopper and baby shopper are all out at the malls, but no one's really buying anything. Don't blame them: Their hands are full with cups of corn, ice-cream cones, and McDonald burgers. Good for Ronald and his pals selling out of kiosks, but not so good for the big, well-lit and air-conditioned stores. You get the point, right? There's no dearth of footfalls at malls in India, but there just isn't enough high-value shopping happening. With tenants in malls crying murder over the rentals they are asked to cough up, mall owners are coming up with a solution.

In what could be the retail industry's pay-as-you-go fare, malls are agreeing to a turnover-based rental model. For instance, Select Group's Select Citywalk in south Delhi, which opens in March 2007, is the first shopping mall in Asia to adopt this model throughout the property. This implies that at any given month, the tenant pays either a monthly minimum rent or a percentage of sales, whichever is higher. Apparently, this is the most preferred model in Europe and the us, as it ensures a consistent involvement of the mall owner in marketing and maintenance of the property, thereby driving up the retailer's sales. So, Select Citywalk will have a separate team looking after the management of the mall in terms of maintenance, promotional activities and advertisement. "There is a huge difference between a mall developer and a mall manager, and the developers have to understand this," says Pranay Sinha, CEO, Select Infrastructure, which is developing Select Citywalk. "Without the developer's involvement, it is not possible for any mall to sustain revenues for long, even if it gets higher number of footfalls." The turnover-based rental will not only induce the developer to employ means to convert footfalls into revenues, but also ensure that the retailers will always have shoppers all the year around because of the promotions.

Other malls are following suit. MGF leases out all of its shops instead of selling them individually and though the company collects a flat rent from most of its tenants, it has now started asking for a pie of the revenue from some of its more solid retailers such as McDonalds at the Metropolitan in Gurgaon, and KFC and Pizza Hut at City Square in West Delhi. "It totally depends on the demography of the area and on the retailers. If I am sure about returns from a particular shop, I would seek the turnover-based rental then," says Baljeet Singh, Vice President, MGF Mall Development. MGF, on its part, organises promotional activities in the malls from time to time.

Under the sale model, a developer acquires land, pre-sells individual shops to investors and then constructs the mall. He has no control on the trade and tenant mix of the property as the developer is involved only till the sale of the property takes place. With no promotions and worsening condition of the malls, it often happens that the footfalls don't convert into rupees-at least, enough of them. "For us, the turnover-based model works fine as it ensures that the developer is doing enough to attract and sustain the crowd in the complex," says Hemu Javeri, President of Madura Garments. K. Raheja's Inorbit Mall in Malad, Mumbai, is also an example of the growing trend. "While majority of our revenue is through flat rent, we do take some share of the retailer's revenue when turnover crosses a specific mark. It differs from shop to shop," says Manoj Motta, General Manager, Inorbit Mall.

With India expected to have 220 malls by 2007, up from 30 in 2003, and the current average lease rentals across top cities ranging between Rs 88 and 120 per sq. ft., a month, this model may soon become a more viable options for both the retailers and mall developers.

-Pallavi Srivastava

Don't Cry for Me, India
Big-ticket IT deals aren't dead yet.

TCS' Ramadorai: Have no tears

Just when some industry analysts were busy pronouncing that large it outsourcing deals were dead, two Indian it majors TCS and Satyam together have bagged a seven-year, $145 million (Rs 645 crore) deal from Australian airline, Qantas. Global sourcing advisors, tpi, in a recent report had asserted that in the third quarter of the calendar year, not only had the total outsourcing market shrunk but the deal sizes had also whittled down. Sid Pai, Partner, TPI says, "There is a year-on-year drop of contract award signings that are in excess of $25 million (Rs 112.5 crore). Companies are looking at multiple vendors and that is the reason for the paucity of large deals."

While that maybe so, Indian it vendors have clearly demonstrated that the value they bring to the table is compelling enough for clients to award them large contracts. CEO of TCS, S. Ramadorai, in a statement reacting to the deal ($90 million of it comes to TCS) said that "this engagement is a significant milestone for TCS' airline business and is the result of our extensive investments in building expertise." Rama Raju, co-founder and CEO of Satyam, which bagged the rest of the deal, was equally gung-ho and said, "We look forward to leveraging our global expertise towards achieving Qantas' goals and objectives."

Typical it industry platitude, but the deal raises one interesting question. If, as the industry analysts claim, the outsourcing market is shrinking and deals in general are getting smaller, how are Indian vendors managing to bag large contracts? What is the reality? Pai, on his part, says that the two assertions are not contradictory "While in the third quarter there was a dip in outsourcing, overall for the entire year there is still growth compared to the same period of last year," he says. The other half of the story, Pai says, is that India-based vendors have increased global market share from around 1 per cent in 2004 to nearly 4 per cent in the current year. With their ability to squeeze efficiencies best, primarily by taking advantage of the global delivery model, the share of the Indian it vendors in the overall outsourcing pie is only set to increase in the future. Also, as seen in the past, a squeeze on it budgets has meant that companies start looking for the biggest bang from the buck. And India-based vendors, because of their global competitiveness, have benefited from any belt tightening. So, this time around, too, if such a scenario emerges, it companies in India are likely to be benefited more. For it vendors in the country, it is turning out to be a story of 'heads we win, tails you lose'.

It is not just the case with one large deal of Qantas. Large India- based vendors, (think TCS, Infosys, Wipro, Satyam, Cognizant, HCL Technologies) across the board have increased the number of clients who give them business in the range of $20, 50 and 100 million.

Pai of TPI admits that while large deals are being split, the average deal size being bagged by India based it service providers is actually increasing. George F. Colony, Chairman and CEO of market forecasting firm Forrester Inc also in a recent chat with Business Today had said that next year while growth of it spends are likely to slow down to 3-4 per cent from the current year's overall 7-8 per cent, such a move is likely to benefit Indian vendors. "Right now the Indian it vendors have the momentum and are placed best to ride out any likely slowdown in spending growth," Colony had said. Slowdown or no slowdown, it is still growth time for Indian it.

-Venkatesha Babu

Cricket Gets Pricey for Sony
The broadcaster decides to look at other games.

SET's Dasgupta: Won't play ball

With the old guard of the Indian cricket team a few years from retirement and bidding rates for cricket going through the roof, Sony Entertainment Television (SET) has decided not to bid for the International Cricket Council's (ICC) telecast rights for the 2011 and 2015 World Cups and all ICC-related tournaments during that time. "Cricket is a high risk game and bidding prices have touched the stratosphere this time," says Kunal Dasgupta, CEO of SET India. "It is very difficult for anyone to make money at these levels, so we have decided to put our money elsewhere."

For competitors Zee, ESPN and Ten Sports, it's one company less in the fray. "Cricket is an intangible property and each company's view on whether the price for rights is expensive or not depends on how much money he can put on the table," says R.C. Venkateish, Managing Director of ESPN. He refused to comment on the reported bids for the rights-Zee at $900 million (Rs 4,050 crore) for all rights and ESPN-Star Sports at $600 million (Rs 2,700 crore) for India rights-saying: "They are still in sealed envelopes, which will be opened in the next couple of days." If these numbers are correct, it will mean a substantial increase to Sony's $250 (Rs 1,125 crore) bid for the 2003 and 2007 World Cups.

Manish Porwal, Executive Director, India (West) Starcom Worldwide, agrees that cricket prices have hit the ceiling. "The broadcasters need to think not twice but 10 times before making a bid at these prices," he says, adding that "with the associated and expanded risks, the best thing would be to collaborate to share the risks and thereafter the spoils." In fact, that's precisely the thing set's Dasgupta is counting on.

-Shivani Lath