Business Environment

Coping with trying times

When the US spread the gospel of laissez-faire economy around the globe three decades ago, it was successful in recreating much of the world in its own image. The doctrine of open markets seemed to work, at least for the US, and helped in generating wealth and increased the growth rates by leaps and bounds. Free from the intrusive government regime, technology innovated and created a New Economy with a lot of exuberance. Recessions banished to history and everything seemed to be fine until the bubble burst in late 1999 and the economy was again in doldrums.

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Indian Economy :A double-digit growth

--  Arvind panagariya

To reach the current American per-capita income, it will take us a little more than a century.

If India were to consistently grow six percent per annum, at the current population growth, it will take her 14 years to catch up with the current living standards of China and 73 years to catch up with those of Korea. To reach the current American per-capita income, it will take us more a little more than a century. These time periods can be nearly halved by a growth rate of 10 percent. Thus, we face a staggering challenge.

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Indian Economy :Second phase reforms

-- Dr. Somdeb Lahiri

From about 1965, the dominant factor in Indian politics has been nepotism rather than able governance. This nepotism has manifested itself through various regimes, which have used economic policy instruments to further the cause of certain vested interests, rather than promote the cause of the country. As a consequence, it has so happened that, even if on some rare occasion, some government has contemplated a bold step, that has inevitably fallen on deaf ears. This is precisely what has happened with India's economic reforms in general and with respect to WTO commitments in particular. The mission of building a modern India has been abandoned for all practical purposes from about the late sixties. The major educational institutions and scientific laboratories that we are so proud to flaunt to the rest of the World were by and large conceived before the seventies. Till date, the only issues in which India has consistently made her mark and still comes out clean, are those pertaining to territorial acrimony and war against international terrorism. While, that in itself is no mean achievement, I would imagine that the mission that the country had defined for herself, at the stroke of midnight on August 15, 1947, envisaged much more than that.

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US Economy :Whither recovery?

--  Blair Baker

Markets often get ahead of themselves and the US economic picture remains clouded.

A curious thing happened after the Federal Open Market Committee's most recent 50bp monetary easing on November 6, despite the Fed's pronouncement that "risks are weighted mainly toward conditions that may generate economic weakness," market interest rates have moved appreciably higher and expectations of future interest rate cuts have dissipated. For instance, the Eurodollars futures market is now predicting three-month rates in June 2002 of 2.79 percent (consistent with a federal funds target rate around 2.50 percent) as opposed to three-month rates around 2.09 percent (implying a federal funds target rate below two percent) around the time of the Fed's move. December federal funds futures contracts now suggest there is only a 33 percent chance of an additional 25bp easing by the end of the year. As expectations of additional monetary stimulus have been removed from the short-end of the Treasury yield curve, longer-term yields have crept up also - the yield on the long bond recently jumped from 4.86 percent to 5.29 percent in one week. Even the yields on two-year Treasury notes have escalated some 70bps since November 6.

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Asian Economies :Export-led growth prospects 

--  L Randall Wray 

After more than a decade of recession, there seems to be nothing the government can do to stimulate domestic demand sufficiently to resume economic growth.

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Changing Face of Business :Impact of technology 

--  Dr. M Krishna

There has been a paradigm shift in the way businesses function. The customer or the client addressed is not in the neighborhood and in some cases is never physically seen by any one in the company.

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Global Slowdown :Cause and repercussions 

--  Jinesh Pancholi

Various industries at various stages passed through consolidation to become more competitive and economically viable and sturdy.

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Corporate Strategy 

Re-thinking strategy

The lurking fears of an impending slowdown, are no longer just fears or mere troubling thoughts. They have suddenly become too real to be turned a blind eye to. Among its multitude of effects the September 11 terror attacks had on the world in general, and the US in particular, that of ushering in the economic slowdown is one of the most prominent one. Till then these issues could be best described as nagging doubts at the back of one's mind which everybody wished were proved as wrong. But the reality as it turns out, is that the world and particularly USA is facing a severe economic slowdown.

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The `Big 5' :Accountable to whom? 

--  Dr. David Crowther

The fact that same companies provide both auditing and consulting services has led to concerns over the resulting of conflicts of interest. These conflicts of interest came under severe criticism after the burst of the Internet bubble. Regulators too are of the opinion that conflicts of interests did exist and separated the functions of auditing and management consultancy.

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Business Ethics :The emerging trends 

--  Dr. Peter Wolf

Ethics is increasingly becoming an integral component of business worldwide. The trend in general seems be towards embracing a code of ethics by corporates. The article takes a look at the emerging trends of ethical practices in Corporate America.

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Enterprise Risk Management :A better option 

--  Prof. Kevin Dowd

The concept of `risk' has undergone a drastic change. Today the trend and rightly so, is towards enterprise wide risk management. Companies are increasingly becoming aware that risks from various corners and various factors have to be factored into their strategic decision-making. The author discusses ERM vis-à-vis the traditional approaches to risk management along with its relevance in the context of the economic slowdown.

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The Silicon Valley Management Style :Lessons to learn 

--  Steve Towers 

The Internet era brought with it distinct kinds of businesses. These technology and knowledge based businesses have in turn ushered in a new management style. The Silicon Valley Management Style as it has come to be called has its set of priorities. To what extent is this style of management successful and applicable to the traditional kind of businesses?

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Corporate Finance

A defining moment  

It would be a cliché if we say that the world of business has not remained the same. Benign and considerate, no more. 9/11, as the September 11 terrorist attacks on WTC are now known as, has just changed everything around us.

The gory acts of the religious fanatics not only have shaken the US business enterprises; its echo could be heard in the realm of the Indian business as well.

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Reward Systems : Managing in tough economic times 

--  Patricia K Zingheim, Jay R Schuster

The reward systems adopted by companies have changed greatly in the last five years. They have been upgraded to be competitive in retaining the best talent within the company. But no sooner did one think they had finally adjusted the realities of the market place have changed from seemingly never ending spree of prosperity to that of economic downturn. This calls for another round of changes in the reward systems of businesses.

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Intellectual Capital :Challenges in reporting 

--  Scott Hawkins

While financial accounting can accurately measure, verify and attest a company's ability to manage tangible assets and financial capital, this capability diminishes as the proportion of intangible assets in a company increases.

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Intellectual Capital Reporting :Transparency at core 

--  Leif Edvinsson 

The so-called New Economy with its fundamental intangibles, such as R&D, intellectual properties, knowledge recipes, etc. is waiting more insightful reporting. This will avoid the sentiments and high volatility on the stock exchanges as well as avoiding management behavior resulting in cost cutting, labor lay off, etc.

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Ban on Pooling Account Method :A paradise lost? 

--  Kenneth L Fisher

The removal of all the restrictions placed on by the pooling method actually could increase deal flow. Companies have been so focused on the earnings hit, and therefore pooling, many missed out on taking advantage of the creativity the purchase method allows for. The fact is that accounting is just one small aspect of a merger decision. It is like getting married because the dress looks nice!

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M&A :In safe waters? 

-- Virendra Mahurkar

Although we have been facing a domestically spawned slowdown, the direct effect of the global economic crisis on our country is likely to be mitigated by the relative isolation of the Indian economy.

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Share Buybacks :Where are we headed? 

-- Justin Pettit

With stock prices still lagging and many executive stock options well underwater, the momentum behind share buybacks continues unabated. We review trends in buybacks, dividends and leverage, financial policy rationale, and ramifications for investors.

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Sectors

A glimpse

As the US economy wobbles, it's not surprising that it has affected the world's economy, simply because the US is the biggest global consumer. With the US not in the buying mood, foreign economies depending on sales to the US are also faltering. Adding fire to the fuel, the September 11, attacks on the US amount to a strike on the global economy. Oil prices are up which is going to clearly lead to currency swings. The global financial system is set to suffer, with all its spin-off ramifications for the way companies do business.

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TMT :Destined for a comeback 

--  G R Ramadesikan

The infotech sector, which is currently undergoing a bad patch, will rebound within a year's time.

The crash of Nasdaq, poor performance of technology powerhouses like Lucent (the holding company of the Bell Labs which has fed the telecommunications revolution) and Qulacomm, and last but not the least the events of September 11, have cast serious doubts on the once thriving sector (New Economy).

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Is your business Ecompatible 

-- Ashok Kumar

The key to success is to find a way to give customers what they want without the expense of traditional business operations.

The technology boom and bust is simply the latest in a long history of investment bubbles that have left most people scratching their heads and licking their wounds. Every emerging industry has its "coming out" party when the glow of potential riches overshadows the fundamentals of good business sense, and even basic common sense.

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E-Business :The new vistas

--  Dr. Mahesh S Raisinghani

A clearly articulated and well-documented e-business strategy can help organizations assess and evaluate the results of their efforts.

My focus on the fundamentals that require a crystal clear e- business strategy in a dynamic competitive environment of discontinuous change. This ensures that an organization's e-business efforts and overall business goals and objectives are aligned. In a lot of companies there is a tendency to consider the corporate Web site and efforts to interact with customers and suppliers online to be the e-business strategy. Indeed, these front-office activities predominate. Unfortunately there are fewer companies that are leveraging the Internet to offer entirely new products and services, transfer processes online, or exploit new markets. Although a company can have an e-business strategy that requires only a Web site, it is important to remember that a Web site is an enabling technology; it is not a strategy in and of itself.

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Agricultural Biotechnology :Implications for Indian technological growth 

--  Dr. Brian R Shmaefsky

Agricultural biotechnology is rapidly becoming a major component of the global economy after lagging behind other commercial initiatives.

Agricultural biotechnology for the "Third World" or the "South" at one time conjured images of dependence on another country's technology, usually the United States, to improve food production for local use and export. Profits and benefits for the recipient nations were limited by the high costs of annually purchasing patented seeds and stock. Most of the financial gain of agricultural biotechnology went to the nation supplying the genetically modified (GM) plants. This countered any efforts for sustainability and self-sufficiency.

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Financial Markets

Wading through rough waters

Throughout 2001, financial markets never showed any signs of coming out from the bear grip. Analysts across the globe are seeing only losses on the horizon for business-to-business stocks, telecom, Internet stocks and the list goes on. There is no sign of recovery whether it is the New York Stock Exchange or the Mumbai Stock Exchange.

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Equity Markets : Caught in a hang 

--  Parag Parikh

The problem with our industry is not speculation per se; speculation has always been a part of the market and will always be. It is the inability of the investors to distinguish between investment and speculation.

The year 2001 has been a very turbulent year for the stock markets. I would like to go to the basics of what investment is all about. It is important to understand how we have deviated from the conventional wisdom of investing.

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Risk Aversion :Growing fears 

--  Gopalan Ramachandran

The perception about risk is fast changing with new risks arising and few vanishing altogether. But the lowering of perceived risk by the investors has made the markets totally deserted. The article discusses the emerging trends and the role of risk aversion in the economy.

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Debt Markets :Long way to go 

--  Rajeev Thakkar

With the equity markets reeling under the bear phase, activity in debt markets increased tremendously. Yet, debt markets are facing challenges as the issues have to be very quickly resolved to bring them at par with the global markets.

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Credit Risks :Use of credit derivatives 

--  Vinod Kothari

Credit risks has always been a factor of concern for banks and financial institutions. Growing credit defauls is making credit derivatives as the best alternative to hedge these risks.

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Financial Services

Challenging time ahead

Nationalization of banks was the first step taken by the government to effectively control the banks and aid in the proper implementation of the monetary policy. The financial sector in India has come a full circle. The nationalized banks were not enough there were other old private sector banks, which could not meet the parameters to join the elite list. However, the significance of these banks in the financial system cannot be overlooked. Foreign players were also allowed to open branches here to meet the export requirements. That was also time when the Indian banks started opening branches overseas. This was a system, which envisioned the socialistic sentiments. The savings were understood to be safe with the banks but the customer services was the last in the priority list. This was also a time when the banks recruited people in masse resulting in a bloated workforce. The disbursement of funds were largely dictated by the government rather than to the most deserved. Corruption was widespread. Risk management was never pursued. As a result the Non-Performing Assets (NPA) piled up. This deteriorated the financial health and brought a few banks to the brink of closure.

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Volatile Interest Rate :Harmful but unavoidable 

--  Anand Anchan

With repeated cuts in interest rates, banks are facing a challenge. Though a volatile interest rate is undesirable, banks can use the hedging instruments to reduce the risk.

If cash is the life-blood of any organization, the interest rate it pays for the cash is the blood pressure. Volatile interest rates, like volatile blood pressure, are harmful but unavoidable. They need to be managed and appropriate risk tools and hedge mechanisms are a necessity in the current environment.

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Indian Banks :Tradeoff between risk and reward

--  Dr. N Nagarajan

With the economy in recession the banks have to make the difficult choice of choosing between investing in risky and non-risky assets.

Since the slow down of the Indian economy is now universally agreed upon, it is useful to consider its challenges to the domestic banking system under two broad heads: its implications to the financial results of banks and the options available to them to overcome the challenges.

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Indian Financial System: The Unorganized Sector, Integration is the key 

--  Prof. R Vaidyanathan

Integrating the unorganized financial sector into the main stream would go a long way in facing the economic downturn effectively.

India presents a fascinating variety and diversity in all aspects of its national life including national economy. Since the Indian society is mainly organized around families and communities the social capital in India is strong and deep. For instance it is the family in India, not so much the State, which provides for social security for the old age people and in that sense India is the most privatized economy in the whole world and this is what has lent stability to the nation for centuries.

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