Namaste Hindustan

Ok ; don’t sigh at the completely unimaginative title – after Zaijian Zhongguo, it's inevitable that it has to be Namaste Hindustan. The title means Hello India, in Hindi.

Just as leaving a place is a cauldron of emotions, arriving at another, is equally so. Even if, and probably especially if, it's your home. Things are familiar. You know people. And yet it is an unsettling feeling. Things have changed. Some of your favourite places are gone. Some of the people you know have moved on. You are suddenly an outsider coming in, rather than an insider giving a knowing smile at the new arrivals.

As always, in such moves, it’s the small things that catch the eye. In the first few days back in Bangalore, these are what have really struck me

• Top of the list has to be reading a newspaper with the morning cuppa. A real newspaper. I almost lovingly caressed it on the first day ! I am in the camp which is firmly of the opinion that “The Hindu” (a longstanding newspaper in India) with filter coffee is the only civilized way to start the day.

• Switching on the TV ! Hooray. Only somebody who has been subject to CCTV (China’s television) for three years can understand this. Having said that, it really struck me how appalling the Indian news channels have become. Shrill and pathetic dredging of controversies all in the name of chasing eyeballs. Ugh !

• Walking into a place to eat and not worrying about vegetarianism. Not having to explain that you don’t eat meat and getting blank looks.

• Forgetting to tip. In China you don’t tip anywhere. In India you tip before you open your mouth. Having been spoiled in China, I have merrily been forgetting to tip and I am sure I have been subject to the finest collection of curses behind my back.

• Surprisingly, the confusion between right hand drive and left hand drive. I am still walking around to the wrong side of the car !

• Feeling scared of prices, because the Indian rupee is valued lower and hence you pay hundreds of it for anything. Used to paying tens of RMB, it's all feeling “expensive”. Illogical, I know. My irrational solving of the irrational thought is to pay by credit card, so I don’t feel the notes slipping by !!

• The phone goes tring tring. I get a Hello instead of a WAI !!

• Writing a cheque ! There are no cheques in China. Somehow the old world cheque seems comfortingly familiar.

• Getting junk SMSs which I can actually read !! China does not have a “Do not Call” policy, so on an average you get one junk SMS every 5 minutes. I couldn’t read it, of course, so I must have deleted a zillion messages without reading (tip to mobile phone makers – one touch deleting of SMSs would be a great functionality). Here I get junk SMSs every 5 minutes all right, but I can read the blessed thing.

But above all, there is the feeling of opening Blogger without hunting through interminable proxies. The feeling of actually writing the post on the Blogger editor itself. The feeling of playing around with the Blogger features, limited as they are. I never thought I would extol the virtues of Blogger, which is just an average blogging platform, but ......

Is good to be back home.

Zaijian Zhongguo

Goodbye China, goes the title of this post. For this will be my last post from China as I wind up here and head back to India. For nearly three years, Guangzhou has been my home and you’ll perhaps forgive me for a misty eyed long farewell post.

One of the first things that struck me when I decided to come here was how little, we in India, know about China. We study a lot about European history and culture, the Pharaohs of Egypt, the Incas and Aztecs of South America, everything about the US. But we know very little about China – most Indians can’t even name a city after Beijing and Shanghai, let alone know about China’s rich history. The reverse is equally true – very few Chinese know anything about India at all. I came to China as a newbie, quite ignorant of this country.

I leave China, equally ignorant, but perhaps with a greater understanding of my ignorance. China is a complex, fascinating country rich in culture, diversity, history and tradition. It is changing at such a rapid rate that it is almost impossible to keep up. It is a country like no other in the world

Business China is, of course, fascinating and excruciating at the same time. Probably the best known facet of China. The vibrancy, the size, the dynamism, the sheer energy, the opportunities, are all well known, and take your breath away. The scale is simply astounding. When you see a factory with 100,000 workers as common place, you know you are seeing a colossal giant. The pragmatism of many of government’s policies, the foresight on developing infrastructure (the phrase “build it and they will come” has an altogether new meaning here) and the single minded pursuit of economic development are all lessons every other country would do well to learn.

Cultural China, on the other hand has been a disappointment. This country has westernized completely, but with one big exception – language. Much of traditional China is gone in the cities. If you close your eyes, and discount the colour of the skin, you could be in any western country in the world. Buildings are steel and glass. Six lane highways everywhere. Everybody is western clothes. Only the very old do Taichi – the young are in yoga , or belly dancing. I was struck by an observation somebody made – From the west, India took the language and but kept its own culture. China took the culture, but kept its language. Ring of truth in it.

Sporting China has been an absolute delight. You would expect a sports nut like me to cover this, of course. Unbelievable facilities. Great events – sitting in Guangzhou I’ve been to the World TT championships, World Badminton championships, seen a couple of NBA teams, watched the Olympic fever (alas, didn’t go to Beijing) and if I had waited for three more months, the Asian Games. Yes, the Asian Games in November will be in Guangzhou – you’ll see a bit of the city on the telly then. Not to mention great sportsmen and very pretty sports women. Been teased mercilessly for my infatuation with Zhao Ruirui, Guo Jingjing and Xie Xingfang !!

Musical China is all western. Both classical and pop. Concert halls here rival the best in the world. Traditional Chinese music ?? What’s that ?

If you mention China, you have to mention food. But you have to excuse my mere passing mention, given that I am a freak who does not eat meat.

But above all, far above all, are the people. You cannot help being blown away by the friendliness . The people are simply amazing and incredible. Despite my not knowing Chinese, I have made some wonderful friendships that are unforgettable. At work and outside work. The warmth of my colleagues at work, who accepted a foreigner with open arms and took me into their hearts has been both a privilege and a honour. The sheer joy of friendships outside work and the smile of the stranger are reasons why this has been such a memorable time.

Have there been difficulties and things not so nice ?? Of course there have been. But it would be churlish and petty to dwell on them. For the joy and delight have been so overwhelming that everything else pales into insignificance.

I leave China with mixed emotions. I will truly miss China and the wonderful friends here. As I have done the rounds of farewells over the last month, I‘ve been saying it’s a small world and that friendships are not bound by distance. But I know it won’t be the same . We all move on and we will go our divergent ways. But at least, I am thankful, that for a little while, we journeyed together.

With a lump in the throat, with a heaviness in the heart, with a trembling of the lip, with a tear that’s threatening to spill over, I say zaijian to Zhongguo.

I’ll leave you with this song, for what better way is there to walk off into the sunset than to the strains of music ……..

How to score an own goal

China’s bosses sometimes find it difficult to understand the world; especially as seen through their own lenses, which are admittedly very thick. What can you make out of the following news report – “The western rating agencies are politicised and highly ideological and they do not adhere to objective standards,” Guan Jianzhong, chairman of Dagong Global Credit Rating, told the Financial Times in an interview. “China is the biggest creditor nation in the world and with the rise and national rejuvenation of China we should have our say in how the credit risks of states are judged.”

China likes to develop everything by itself. It doesn’t like Google; it has Baidu instead. Doesn’t like Facebook, YouTube, Blogger, …….., I can go on and on. Every one of them has a local equivalent. It’s not just in IT. Take Credit rating. It wants its own credit rating agency. Enter Dagong Global Credit Rating. It has about a quarter of China’s own fledgling credit rating market, and of course zilch of the global market. It started life with a “technology agreement” with Moody’s back in the mid 90s and having learnt the ropes, kicked them out – that’s par for the course for business here.

Back to the delicious irony of Mr Guan’s comments. Western credit rating agencies are politicised and in the same sentence he argues for China to have a say in how credit risks of states are judged !! To an outsider, it would appear that you could accuse Moody’s , S&P and Fitch of lots of faults, but being “politicised” is the last thing that comes to my mind. But from behind the myopic lenses from inside Beijing, it is understandable that it looks that way, because everything else here is that way.

He then goes on to criticise the practice of “rating shopping” wherein companies shop among the Big 3 to see who would give the best rating and give the business to them. Yes, there was much of that in the boom time, but Mr Guan, this is called competition. It is anyday better to have rating shopping than to have a single agency that would take its orders from the government.

And then, as is the wont here, Dagong published its own ratings for soverign countries. No prizes for guessing which country comes above the United States, Britain, France, Japan …… Another delicious comment from the delightful Mr Guan “US is insolvent and faces bankruptcy as a pure debtor nation but the rating agencies still give it high rankings “ !

The official news agency , Xinhua, immediately published an editorial wildly praising Dagong. It lauded Dagong’s report as a significant step toward breaking the monopoly of western rating agencies of which it said China has long been a “victim”. No doubt Dagong’s report was cleared with the powers that be and his comments vetted – how is it that the possibility that it might just be a tad too funny to claim politicisation of western credit agencies in the same breath escaped these mandarins ?

And Dagong’s aim is to break into the world credit rating market. Fat chance.

Sometimes, they just don’t get it.

Et tu J&J ?

What on earth is happening at Johnson & Johnson ?? It is one of the world’s foremost and respected companies. For 120 years it has commanded trust from consumers, employees, governments, investors – virtually everybody. It is a regular in the Top 5 of the World’s most admired companies – this year it is 4th. Consumers know it largely for its baby products – every mother trusts Johnson’s baby powder, or lotion or bath or whatever. If you are sick, you pop in a Tylenol; if your child is coughing you give her Benadryl. It is also a name totally trusted in hospitals – it produces a variety of medical equipments and supplies. Investors love J&J for the steady performance, and therefore the returns, it produces. It is one of the four companies left in the world which has a AAA rating. If there has to be one company that typifies all that’s good about the corporate world, it would be hard to find a better candidate than Johnson & Johnson.

And yet, I read with an increasing sense of disbelief of the troubles that are plaguing J&J. Today it just released its Q2 results and downgraded its yearly forecast of earnings. Not because of anything fundamentally happening in its markets. Because it has been facing a series of product recalls. It all pertains to one manufacturing plant in Fort Washington in the US. This has been going on now for more than a year – one recall after another, quality problems at the plant, scathing FDA reports and yet J&J allowed this problem to drag on for so long. Now it has shut the plant.

Remember this is the same company that created history in 1982. 9 people died in Chicago after consuming Tylenol – some criminal was tampering with the product on retail shelves and deliberately injecting cyanide into it. It had nothing to do with J&J – this was some crackpot criminal doing it. J&J immediately reacted by recalling 31 million bottles of capsules nationally. It was the first major product recall in the US – J&J said it didn’t care what the financial consequences were and whether it was responsible or not ; it was just not going to put any of its consumers at any risk. Full stop.

And now, look at what’s happening. Foot dragging on quality issues at that factory. Contesting FDA reports. A sorry saga of multiple recalls, drip fed over the last 18 months. Closing the factory only after a FDA inspection slammed it a full one year after the problems started surfacing.

This is a company which has some of the most outstanding quality systems in the world. I know this for a fact. In their famous “Credo”, which the company truly lives by, quality features in the second sentence. Every other manufacturing plant in the company probably has outstanding quality systems. Its just this one plant in Pennsylvania, that has been the cause of all the problems.

Just goes to show that when quality and safety are concerned, you can never, never, ever relax. Not even the greatest and the best are immune to falling. Next time when you take a safety audit as a pain in the backside or the ISO or CMM audit as a joke, pause and consider. This is probably what the plant management in the Pennsylvania plant did. Now look at the consequences.

I am now convinced that there has to be two clinically paranoid people in any company – the head of safety and the head of quality. Clinically certified as paranoid beyond redemption. Complete monsters who will believe nothing and crucify everybody. The most difficult and obstinate people who you can find on the planet. They will be the most valuable employees of the company.

All of you at J&J; please, please ,please, do not let down our trust. It's not just you, the company. You stand for all of the corporate world.

Why, oh why, do they come back

Why , Oh Why, do they come back ?

Don’t look back. Don’t ever look back. Please. You are an all time great. You have millions of adoring fans. You have made enough money. Yes, I know that the road forward seems only downhill and the wonders of the lands you have just passed is fatally alluring. But bite your tongue. Thrust your chin forward. Go forward. And don’t look back.

This could be true for any one of us, that is if you slightly discount the millions of fans and the enough money bit. But it is so so true for sportsmen. Its really tough not to look back – but alas, many succumb to the temptation.

Look at Michael Schumacher. Why did he do this. He had achieved all that there was to be achieved. And yet he comes back. To be scrapping with teammate Nico Rosberg for 10th place, and losing. Remember the days when the mere presence of Schumi on the track would be enough to strike terror in the hearts of opponents.

Michael Jordan was a case who both proved and disproved the theory. When he went away first time after “three peating” – Ah the wonders of American English – he could only stay away for 2 years. He came back and picked it up where he left and won three more. Went away and again came back after 2 years. This time, well; let's leave it at that.

Women in tennis are particularly prone to this affliction. Probably because they come very early to the game and retirement age is 25. That’s cruel. They come back and then struggle. Kim Clijsters and Justin Henin recently bucked the trend – they came back and won. But I think they will rapidly slip away.

The saddest sight is that of Lance Armstrong in this year’s Tour de France. Firstly he beat cancer. That was without a doubt his biggest victory. After brain surgery and extensive chemotherapy, he went on to win the most grueling of sport – the Tour de France, seven consecutive times. Nobody had come remotely close to that before. For years, the sight of Armstrong in a yellow jersey (the colour of the leader) dominated cycling. In 1995, after winning for the seventh time, he bowed out unconquered. And then, what does he do – he came back last year. He lost, but was at least competitive. This year, he is in the 25th place today. And we haven’t even got to the Pyrenees.

There are of course, those, who went out with great grace and never looked back. Don Bradman was one – after leading the arguably greatest team of all, the post war Aussies, in the Ashes, he went out when he was at the very peak. And a little man emulated it some 40 years later. For years, he had carried his country on his shoulders virtually single handedly. When he was still the best, he decided to go. The setting was Bangalore. Against the old enemy. The ball was turning square. In a minefield of a pitch, he stood alone, the Little Master. He was on an altogether different planet. India lost narrowly. But as the shadows lengthened, he walked away, unbowed, the greatest of them all. He never came back.

That's the way to go. Why, Oh Why, do they get tempted to look back.

What a waste of time

If you are an Indian, by now you would have seen the new symbol designed for the Indian rupee. Given the close attentions of my beloved net nanny, I cannot reproduce it , but if you really wish to see it, you can do so here.

This is a small matter, but is so typical and representative of India. Symbolism and pride is wildly disproportionate to reality. Currencies such as the US dollar, the Euro, the Yen, the Pound Sterling, all have their unique symbols. India aspires to be in that league. But the fact is that you don’t join the league by having a symbol; you join that league by having a currency (and by implication, an economy) that is worthy of being there.

With all due respect to the country, and I am an illogically patriotic Indian, the rupee is a basket case. Because, the underlying economy is far from strong. The rupee is still subject to stringent controls, especially on the capital account, and rightly so. The market is this currency is minuscule. Nobody, other than an Indian, really bothers about the Indian rupee.

While “India Shining” is a nice slogan and is in some parts true, the economy has serious problems that are masked by the heady intoxication of decent growth. The fiscal deficit and the national debt are at appalling levels – if India was not growing, it would be closer to Greece. Fiscal irresponsibility, especially in the states, is something that this blogger has frequently moaned about. I am willing to bet that not one state legislator is capable of even spelling fiscal responsibility in any language of his choice – we survive only because we are thankfully blessed with a more enlightened Central Government. Strange must be a country where a “reduction” of inflation to "only 10%” is seen as good news.

This post is a call to India to consider a large dose of humility. We are, but a bit player, in world economics. May be unpalatable and distasteful, but that’s the bare fact. Rhetoric cannot substitute for reality. Global perception of India’s weight is way above what it really is. We love the role of wrecker in chief of the WTO rounds of talks. We bang the drum at Davos. We want to be included in every global forum and want to make as much noise as possible. Much hot air and little substance.

I know this is an overcritical piece. But deliberately so. India has huge strengths. It should put its head down and do the right things economically. It should shun symbolism and achieve real progress. A dose of understated and outstanding performance would do it well. Deng Xiao Ping, a particular favourite, at least economically, of this blogger said “Keep a cool head and maintain a low profile. Never take the lead, but aim to do something big”. Wise words, India would do well to emulate.

The strategy of the country India sees as its main competitor (but to whom India is no more than a flea !) is exactly the opposite. Massive progress, but little symbolism and a head that’s just beginning to rise above the wall. But then India has one huge advantage that will stand it in great stead in the future. I can write such a piece about India. Try doing that in the land of the competitor. No way. Its not just that the powers that be will come down like a ton of bricks. The average Joe doesn’t even think on those lines.

And therein lies the key to the future success of India. But in the meantime can we stop wasting time with useless symbols – like this one of the currency.

Whys is AAA not a coveted prize any more ?

Hold your breath, all ye men and women – there are now only four companies in the world which are AAA rated – ADP, Johnson & Johnson, Microsoft and ExxonMobil. That’s it. Why are there so few in this exalted list ?

Before I go further, this is not a “technical” blog. Technically I should be saying companies whose bonds are rated AAA . Short term or long term ? Moody’s or S&P or Fitch ? Is Moody’s rating not Aaa ? Let it go. It doesn’t matter. The point is not to be technically correct. A AAA rating (in whatever form) acknowledges that the company’s bonds (not shares) have the highest degree of safety . Wouldn’t it be something every company would die for ? Obviously not. Only four companies are there. Why so few ?

The recent financial crisis has taken its toll. Quite a few have dropped off the list in the last couple of years. Notably GE, a long time star of that list. Understandable. But this doesn’t explain the paltry list fully.

Some companies deliberately get off the list for strategic reasons. A good recent example is Pfizer. Pfizer decided on a big strategic acquisition in Wyeth. It took a lot of debt on its balance sheet to do the deal. It lost its AAA rating because of this deal, but was perfectly happy to do so. Many companies decide to forgo their AAA rating for a strategic acquisition.

The real issue is the cost versus benefit of maintaining a AAA rating. Bragging rights is all fine, but bragging has little economic value. The real value of a AAA rating is that your cost of borrowing is lower. But to achieve that, you need to meet a number of stringent parameters, including having very little debt on your balance sheet (every one of the four on the list has virtually no debt). Perversely, as a company, if you have all equity and no debt, your cost of capital is high. So what’s the use of lower borrowing costs if you are not borrowing in the first place, or borrowing very little ? Companies decide that the AAA rating is simply not worth the price and therefore don’t aspire for it.

Rating agencies have also become very wary of AAA ratings. Quite a few members on that list have subsequently defaulted !! AIG, once a member of that club, is a good example.

But somehow, it doesn’t seem right that only four companies in the world have the highest degree of financial safety. Is the corporate sector simply too risky ? Or has risk not been priced properly enough to warrant some more companies deciding that the trade off of cost of borrowing and stringency of safety requirements is worth it ? Or does the investment market simply not care for the “highest” degree of safety and is perfectly happy with “adequate” levels of safety ?

So what does the “Scottish widow” (euphemism for the most risk averse investor) do with her money ? Dig a hole in the backyard. Hardly safe. Buy gold ? You must be joking. Put it in a bank ? This is what most widows do, but show me a AAA rated bank. There is just the mistaken belief that there is an implicit sovereign guarantee and that no country will allow a bank to go bust.

I can understand all the logical reasons why there are so few companies at the top, but somehow it seems odd that only four companies in the world are really really really safe financially.

"Person" Chauvinist Pig

This zone has been tag free for some time now, achieved by skillful deflecting of the multitude of girlie tags that swish around in the blogosphere. But when cornered by two begums, here and here, and one gils, this MCP could not resist nibbling at this loose grenade that has been lobbing about.

The tag is supposedly about gender stereotypes and you are cursed with wearing pink pants for 12 years (?) if you drop the tag. Since my entire wardrobe consists of shades of white above the hip and shades of black below, this is a rather dire threat; especially as the aforesaid gils has been known to be partial to, shall we say rather colourful combinations of green and red. So, as is my wont, I am twisting this tag to a company.

It is well known that companies are an extreme version of the male chauvinist pig. Idle Sunday speculation on the feminine traits hidden in the closet might be a fruitful line of enquiry. So here goes.

- Friday dressing. As is well known, obsession with what you are wearing is a peculiarly feminine trait. Companies pander to this by declaring casual dressing on Fridays. And what does it lead the female of the species to wear ? Exactly the same abomination they do on all the other days . (The begum who has hinted that I am a southie of the pattu pavadai , malli poo variety – please note !)

- 360 feedback. Whoever invented this has to be shot. This is supposed to be the goodie goodie touchy feely process of telling your boss that he’s a rather likeable chap, but could he yell just that teeny bit less. Instead of the masculine way of telling him to his face that he is a s.o.b.

- Paternity leave. Now, this leaves me open mouthed. MCPs are supposed to be out bashing other guys to dust in the market. Not changing nappies for two weeks. Please …..

- Pink offices. Have you noticed how garish offices have become. All sorts of colours and so called “swanky stuff” that rival the colours of the version of feminine attire that I have alluded to before. Instead of the austere black that truly represents the hellholes that they really are.

- The company magazine. Makes you want to gag. How great everything is and photos of the 20 suckers who got married or had babies. Instead of plastering it with photos of the office beauties, they then spoil it all by having the CEO’s mug on every page. A pity he looks like a constipated owl.

- The water cooler/coffee machine. Have you noticed that the average coffee time of the fair sex is about 75 minutes more than the he men ? For this is the gossip area. Not about office politics, but about the other girl over there who is wearing a new kurti. Ugh !

- Declaring a holiday for Karwa Chauth. Non Indian readers – you miss nothing by not understanding this gag inducing Indian “festival”. Nobody remembered this prehistoric tradition until the saas bahu serials resurrected it. Now it’s on the holiday list. Eeeks. Where will it end ??

- Potted plants in the corner office. Can horticulture be restricted to botanical gardens please. The man in the corner office is supposed to be a growling tiger. A sad drooping apology of a plant (the watering lady has bunked) rather spoils the picture.

- Gender correct English. What on earth is a Chairperson ? A tea lady should be a tea lady and not a “tea human being”. And please don’t change this popular sound bite – “The consumer is not an idiot. She’s your wife”.

- Tissues in meeting rooms. It’s alright if they are for wiping lipstick, but not if they are an open invitation to bawl. Like smokers, if you want to bawl, you have to go down outside the gates ….

I better duck, for I fear I am in mortal danger !

Capitalism vs Altruism

One of the fields in which the forces of capitalism and those of altruism come head to head is the unlikely field of microfinance. Microfinance as a concept was pioneered by the Nobel Laureate Mohammed Yunus in Bangladesh; it involves lending very small amounts to the poor, often as little as $50, for a very small business activity. The poor are untouched by the banking and credit system and microfinance stepped in to fill the breach. It has done wonders in terms of poverty alleviation, in Bangladesh and in a few other countries where it has achieved scale.

But should microfinance be a charity or a commercial enterprise ? Both models exist. Grameen Bank, Mohammed Yunus’s organization is more at the charity end of the spectrum than at the commercial end. But take the case of SKS Microfinance, India’s premier microfinance entity. It’s run as a commercial enterprise and ahs achieved considerable success.

Such an approach has brought benefits undoubtedly. SKS has brought in terrific processes on loan evaluation and disbursements. Standardisation and big efficiencies have been achieved in running operations. There is very little corruption, as they are not dependent on government grants. They have better access to capital. All very good.

But the problem is that interest rates are high as they seek a profit. Mind you, not as high as the village money lender who usually charges an extortionist rate. But still ….. SKS’s average rate of interest is 28%. SKS rightly says it could charge more – maybe 40%, but it does not as it has set its tradeoff between making profits and not exploiting the poor at this rate.

The high rates are because of the high costs of reaching far flung villages and administering such very small loans. But still, it is difficult not to baulk at interest rates like 28%. How do you run a business, however small it may be, when your cost of capital is so high ?

Yunus contends that any microfinancer who charges 15% more than the cost of capital, must either cut costs or profits and pass the benefit to the poor. SKS’s differential is about 18%.

The debate has been accentuated as SKS is now going in for an IPO. The founders say they need capital to grow and the market is the best place to access it. True. In the process they will make a lot of money. Normally , you would laud any entrepreneur who has achieved success. But in this case, the money making sits a bit uneasily, for, it has come from the very poor.

As microfinance grows in popularity, there is the risk of a “sub prime” happening with dire social consequences. Yunus’s Grameen Bank behaves extremely responsibly. Commercial microfinancers might not be so , and you could argue that social implications of debt is not their remit. The propensity in India for the poor to get into debt for non productive reasons – usually dowry for the daughter’s marriage - is legendary. Inability to repay, and therefore bonded labour, is endemic.

I can see both sides of the argument. Can you (Should you) make money from the poor ? Yes. And No.

I’ve often found Narayana Murthy’s, the founder of Infosys’, philosophy very appealing – you must be a capitalist in the head and a socialist at heart. But in this case I am not sure whether you should rule from the head or from the heart.

Competitive Struggles Among Television Platforms

Since the emergence of cable and satellite television services there has been struggles among platforms to increase their attractiveness to audiences and to draw market share from terrestrial television in developed nations. These struggles have had affected content producers, broadcasters, platform operators and regulators attempting to fashion socially optimal broadcasting systems.

In the first competitive struggles between terrestrial broadcasters and cable operators, broadcasters controlled the highest quality contemporary programming and cable operators primarily competed by offering a wider variety of channels and providing premium movie channels. In many locations broadcasters actively sought regulatory policies to keep their channels from appearing on cable in order to reduce its attractiveness as a competitor.

As cable matured and satellite services emerged, the nature of the struggle shifted as greater subscription and advertising revenues allowed cable networks to offer higher quality contemporary programming. In this competitive phase, terrestrial, cable and satellite operators began struggling for exclusivity of content that would drive audiences to the platforms. Gaining exclusive rights to first broadcast runs of motion pictures, sporting, musical and other events, and high quality original programs became primary goals. In this environment, producers of content and owners of event rights sought to maximize their returns across the platforms. while platform operators sought to maximize their returns by gaining market power through exclusivity. This led to negotiations based not only on transmission rights but exclusivity rights as well, which dramatically pushed up costs of some content—especially sports rights.

As cable garnered a larger audience share, broadcasters that had previously been opposed to carriage of terrestrial signals on cable because asking regulators for ‘must carry’ rules to require cable operators to carry terrestrial channels so they could have additional access to audiences or audiences in places their terrestrial signals had not previously reached. This was especially useful for advertising supported channels, both public service and commercial.

In recent years, the widespread success of cable and satellite platforms and the shift of wealth from terrestrial to other platforms has led broadcasters to demand payments from cable and satellite platform operators for carrying their channels. The newer platforms are resistent and in some nations the struggle over payments remains on-going.

The digitalisation of terrestrial, cable, satellite, and broadband platforms has now created multiple opportunities of distribution of audiovisual materials and is creating a new environment in which additional competitive struggles are taking place among platform operators. At stake are the significant potential gains from advanced paid video-on-demand services and IPTV. Platform operators—DTT, cable, satellite, and telecommunications firms that offer broadband services—are now struggling to ensure that they are not competitively disadvantaged compared to other operators. Operators that control or have high market power over platforms, especially broadband links and systems needed for advanced services or interactive DTT services, will have significant advantages in the next generation of services. Consequently, there is a great deal of effort on the part of major platform operators to acquire access to all platforms and services through ownership, alliances and joint ventures and in many cases there are outright efforts to control those platforms and servcies.

The trajectory and outcome of this competitive struggle is particularly important because it will have significant impact on the range of services and costs for services available to the public. These developments also have significant importance for the relationship between content producers and platform operators because the means of compensation is likely to evolve from current transmission rights and exclusivity rights payments to one involving revenue and profit sharing. This has significant implications to the funding and ways that contemporary terrestrial television programming is created and role of terrestrial broadcasters in the new environment.

KKR goes public at last

In the rarified world of Private Equity, the firm of Kohlberg, Kravis and Roberts occupies a special place. KKR, as the firm is called, achieved legendary status very early on in its life. The firm came into existence in 1976, but its real fame and notoriety came in 1988, when it orchestrated the largest leveraged buyout of that time, the hostile acquisition of RJR Nabisco.

The RJR Nabisco transaction was a definitive moment in business history. It was so huge that at that time it was by far the largest M&A transaction that was ever done – a position that it occupied for more than a decade. Adjusted for inflation, it is still the largest leveraged buyout ever. The story has been immortalized in the best selling book, Barbarians at the Gate . The book reads like a thriller - you can buy it here or here ; it’s a classic must read book. The madness of 1988 was covered in my post here, sometime ago.

From that day on, KKR has come to epitomize all the public perceptions of private equity. Greed, excess, secrecy, enormous power, fear, are the adjectives that come to mind. Corporate raiders, who buy up companies, saddle them with debt and break them up – that’s the perception. As always, perceptions are not always right, but there is an element of truth to them.

KKR remained a secretive organization. Being private, they needed to disclose nothing. They have continued to be active ; completing at least one transaction every year , bar 1990, although something like RJR Nabisco is never likely to be repeated. Of the original partners, Kohlberg left very early on, but the cousins, Henry Kravis and George Roberts continue to run them virtually exclusively. There remains a mystique and aura around these two men – they can create a feeling of terror in boardrooms when they set their sights on a company.

All this is about to change. They are going public with an IPO and listing on the New York Stock Exchange. Now they will be open to public scrutiny, just like any other company. The press has gleefully reported , from their first SEC filing, how much each of them earned last year – a paltry $44m together . The aura, and even fear, will be dented significantly – there’s nothing better than transparency to prick the bubble of mystique. Metaphorically, Henry Kravis, whom even the mighty was in awe of, will now have to sit at a company AGM and listen to the old foggy , who has 1 share in the company, rant and rave at the quality of the snacks served. An experience like that will bring you to the ground with a thud.

Their most visible rivals, Blackstone, caught the timing exactly right, when they took their firm public in 2007, just before the crash came. KKR missed the bus that time, but are going public now. Private Equity remains a thinly regulated field in many countries. As more firms list, that will change. Transparency is the best form of accountability there is. But, I must confess a voyeur’s sense of childish glee at the thought of peeking inside the mysterious KKR.

The perfect gift

“The Gift of the Magi” , O Henry’s beautiful short story, is perhaps something you read in school. It’s the story of Jim and Della, a young couple, who were broke. One Christmas they wanted to give each other something special. Well, I won't tell you the story if you haven't read it before. Read the story via the link - even now it can bring a lump to the throat. A moving story, that made a deep impression on every child.

The art of giving is a very difficult art. We are faced with this dilemma every day – what do we give – for a friend, or a spouse or a parent, or whoever. As we all know, its not the price that counts, its not the beauty of the object that counts. It’s the thought. But what CAN be the thought ? What is the most appropriate thing to give ?

Very often its very cultural. Take wedding gifts. In China, its easy. You give money in a red envelope. Preferable an amount which has a 8 in it (the number 8 is considered auspicious – that’s why the Beijing Olympics started at 8.08 PM on the 8th day of the 8th month in the year 2008). In India it used to be gold. Tonnes and tonnes of it. I simply cannot reconcile to the American habit of the wedding registry where the bride and groom register at a shop and publish a list of what they would like for guests to choose from. Yes, I know the culture is capitalist, but look how far has that country come from O Henry’s story – O Henry was an American !

Think back to how you have been bowled over by an extremely thoughtful gift. Rarely maybe, but surely once or twice. And how often you have been burned by thoughtless gifts which are bound straight for the attic or for cheekily being fobbed off as a gift to somebody else.

Granted, its not always easy to pick the perfect gift. And these days, we seem to be gifting every other day. But for those truly special, is it all so difficult to pick the perfect gift ? Especially if we know them every well ?

I write this post today, for, yesterday I received a perfect gift. Something that has left me all misty eyed. I am on my farewell rounds these days as I prepare to leave China at the end of this month. I was taken out to dinner yesterday by a lovely young couple. A young man and a girl who are due to get married in a few months. They gave me a book. A really professionally produced book, with a hard bound cover and glossy paper. They had downloaded this entire blog and produced a book out of it. Wow ! Double Wow !! Triple Wow !!!

Tony Chen and Corrine Wang – you have the spirit of the Magi. Feichang ganxie nimen. I have never received a more priceless gift. I shall treasure this, and the thought behind this.

A consultant worth the money

Consultants are renowned for being expensive and useless. Every company has horror stories of incredibly expensive consulting which has proved to be utterly worthless. That doesn’t stop companies from continuing to splurge untold millions on consultants though. The consulting industry is alive , well and thriving.

But this is a story of a consultant who delivered a zillion times more value than what he was paid. In 1982, a management consultant was employed by a group of banks to advise them on the sale of Switzerland’s last watchmaking giant, which they had bailed out earlier. This was the early 80s, when Japan was sweeping the world. It looked like the famous Swiss watch industry was on its last death throes and that the centre of the industry must inevitably shift eastwards to Asia. Switzerland with its high costs and outdated notions of making mechanical watches by hand and charging the moon for them looked obsolete.

The consultant who walked in was Nicolas Hayek. But instead of selling the conglomerate which was what he was brought in for, he decided to turn native. He quit consulting and became a watch maker. Leading a group of industrialists he did the completely unexpected – he turned around a no hoper and made it into the world’s largest watch company. Today it holds a quarter of the global watch market.

The company was Swatch. Hayek’s magic was at both the bottom end and the top end of the market. At the bottom end, he championed the cause of the cheap watch. A team of designers designed the watch that could be mass produced and be virtually disposable. But by adding on clever marketing and snazzy designs, he made it desirable. Japanese watches may have been functional but were boring. Swatch soared meteorically.

But the magic was even more spectacular at the top end. He bought Blancpain and installed its owner Jean Claude Biver as head of Omega. Biver did everything wrong by the textbook. He created a shortage by producing less than demand – he wanted his customers hungry and wait for his product. It was by shortage that he said his watches would become desirable. And he famously said he would never make a quartz watch, bucking the technology trend. It was an industry changing move – today 70% of Swiss watches exported are mechanical.

Winning at the top and bottom end of the market takes some doing. Hayek is acknowledged as the man who saved an entire industry. How many business leaders can lay claim to such a tribute.

Nicolas Hayek died last week at the age of 82. Now, what would have happened had he stayed on in management consulting !