Corporate Social Responsible - An Understanding

THE BUSINESS COMMUNITY is more than familiar with the financial collapses of Adelphia Communications Corp., Tyco International Ltd., Global Crossing, WorldCom Inc., FINOVA Group Inc., Enron Corp., and HealthSouth Corp. Each company failed amidst allegations of financial mismanagement, poor decisions, and a lackof oversight. But the reality is that the tangible aspects of financial collapse begin with a severe erosion and eventual ruination of corporate and personal ethics.

Business Ethics is what is missing in their management which led to their downfall leading them to bankruptcy and destroying the faith of all its investors. Agreed all Business have to prosper. But when that NEED turns into GREED thats when the unethical practices begin.

Most common reasons for the aboved mentioned companies to go into drains is beacuse of the human greed. They made use of the loopholes in the accounting systems by trying to inflate the revenues and reduce their debts in their books. Classic Case of cooking books is the Satyam, the Indian IT company .Most of the companies cook their books for keep their credibility in the market and the faith of the investors. This helps the firms to get projects and loans from the investors and institutions. But the problem occures when this manipulation is not rectified and the firm becomes more greedy . Eveything goes haywire in accounting systems. Companies fall. Investors fall. The economic system tumbles. 

Ethical issues is very controversial. Ethics means different for each person. How can Business ethics be practiced and instilled in each employees- from the lowest level to the managerial level? How it can be monitored? How much cheating is allowed in company (Well you can't deny that Business have to do some kind of hanky panky work to get things done.). If firm goes into bankruptcy who should to be blamed? Are Auditors too held responsible? Should the remianing employees be protected too? What about investors?

The questions are endless and the debate can go forever.

 These days due to globalization all the financial markets are interwined. Any problem in the one major company can have deep impact in the other countries too. The example for this is the lastest US recession which affect the entire global.

Thus its a very complex issue. But it has been tackled by various government and regulatory bodies to some extent around the world. A new concept CSR-Corporate Social Responsibility has come into Business world.

CSR is a form of corporate self regulation integrated into a business model. Ideally, CSR policy would function as a built-in, self-regulating mechanism whereby business would monitor and ensure its support to law, ethical standards, and international norms.(source: http://en.wikipedia.org/wiki/Corporate_social_responsibility)

CSR helps to make business practices more transparent . This put more faith in the firms. These days when foriegn companies want to invest in particular company ,they check how strong CSR is. Thus CSR has become absolutely important to attract FDI and faith of the investors.

It reduces the insider tarding to large extent. the investors grievances are looked after .Moreover it attempts to make the nearby society a better place by improving the health, education and infrastructure.

Having good accounting and audit Check. Keeping all records unmanupilative and making them out public.

Because of good corporate goverance even the work enviornment becomes easy and smooth. There is no work and personal ethic conflict. Building a genuine culture of 'doing the right thing' within a corporation can offset the risks of being scandalous and tarishing the reputation. These days Companies trying to use their strong CSR as Competetive Advantage as their USP. CSR can play a role in building customer loyalty based on distinctive ethical values. Several major brands, such as The Co-operative Group, American Apparel , Infosys, IBM , TOYOTA and more are built on ethical values.

What differentiates them with others is the strong systems and pratices put in place which doesnt allow the mal practices. Everything is transparent. They comunicate their values to their investors and public with the service and product they supply.

But there are criticisms to CSR too.Shell has a much-publicized CSR policy and was a pioneer in Triple Bottom Line reporting, but this did not prevent the 2004 scandal concerning its misreporting of oil reserves, which seriously damaged its reputation and led to charges of hypocrisy.Critics concerned with corporate hypocrisy and insincerity generally suggest that better governmental and international regulation and enforcement, rather than voluntary measures, are necessary to ensure that companies behave in a socially responsible manner.

Thus in the end what we can conclude is that no matter what policies , sytems and regulation are used , Business can still find loophole and fraud. Ethics as I mentioned before is something cannot be taught. But if Businesses ,while maximising their profits, considers their stakeholders and thier long time saftey then they will they definitely not indulge into mal practices that will hurt stakeholder sentiments.

Things that can be done to avoid companies to bankrupt

1. A Strong Accounting System with proper Audit checks

2. Two Types of Audit checks- Internal & External checks

3. External Audit to be changed every 3 years.

4. A separate department that deals with ethical issuse of any kind in the firm

5. Encouraging Whistle Blowers and Anonymity to be safeguarded

6. Having regular meeting with various stakeholders so that they are informed with internal matters and get their inputs too.

7. Making a Governmental Union that sets guidelines what is expected from the companies and the authority to check it.

8.Penalizing the companies that do not adhere to the guidelines.

9. A proper financial Reporting system that is communicates all the financial details to the investors.

10. Educating the employees about the CSR and all the ethical practices. Rewarding for ethical prctices and punishing the unethical behavior.

11. Implemetating CSR in all kinds of work in business. Making employees corporate citizens.

Well these are all general guideline which I think that can help forms to avert crises.

Cheers

RMN

Remin

Production Line Can be the Firms Competitive Advantage too ...AirBus VS Boeing

Major structural sections of the A380 , the largest aircraft, are built in France, Germany, Spain, and the United Kingdom. Due to their size, they are brought to the assembly hall  France by surface transportation and some by aircrafts. Components of the A380 are provided by suppliers from around the world; the five largest contributors, by value, are Rolls-Royce, Safran, United Technologies, General Electric and Goodrich.

This pic shows the logistic sequence of AirBus 380 (source:http://en.wikipedia.org/wiki/Airbus_A380)


On Other side of the spectrum we have Boeing which follows Centralized production method and moving line assembly line.

Thus Airbus uses Scattered Global Production Technique. Karan has fantastically jotted down all the points in his post leaving me nothing more to contribute. LOL. Anyways I’ll try to put my own analysis .Maybe some points will overlap.

• Logically speaking, its very insane to keep Moving Line assembly for Aircrafts like Boeing. Because it a large Aircraft .We are not talking about Automobiles here.  Moreover Large Factory setting is required for the same. Machinery and raw material has to be brought to the factory. Thus this all increases cost of production because there is high use of logistics. Also there is fear of safety of the plant hence the manufacture of the Boeing itself. Anything happens to the Plant, the entire manufacture has to be stopped.
• Because of scattered production of each part of Airbus, we can select firms which are specialized in doing the particular parts. Moreover each part will be undergoing its own Quality check at the place where it is manufactured also in the assembly place before it is joined. Thus dual Quality check is possible which is highly important in case of huge transportation carriage like AirBus. The safety is of prime importance. Quality is assured. The Airbus 380’s operating costs are cited at around 15 to 20 percent lower per seat. Add to this claims of fewer emissions, less noise, and a seat capacity stretching from the median 555 to a staggering 800 (double the heaving bottoms on a B747), and it’s small wonder airline accountants are beaming. Airbus claims its plane is more fuel efficient than a car. (source: http://www.smarttravelasia.com/AirbusVsBoeing.htm)
• No need to establish huge Plants like Boeing. Since it the entire aircraft doesn’t have to move on the assembly line. It follows FIXED PRODUCT LINE. Does the land cost has reduced. Individual parts are manufactured in separate areas and transported .Thus it only involves transportation of parts to assembly plant. It will reduce the total operating cost.
• In case of demand are high, Boeing manufacturers will have high pressure. Because they have to do achieve all in the same plant. They can’t afford to go wrong in any move else they fail to meet the targets. But in the case of Airbus, the workload is divided. Hence the workers and employers may not suffer for workload as they do in Boeing.
•  The Most Important Point is in case of Boeing, the suppliers may have advantage over you. They know what your production levels are. In case when you want more materials, the suppliers can bargain with you .Hence leaving you high and dry.  But in case of AirBus, since separate parts are done by separate manufacturers. They don’t have much idea what is the happening in the actually in assembly parts. Moreover if suppliers start bargaining, the buyer can shift to any other firm since it’s the matter of one part to be made. Thus Buyer has the bargaining advantage.  
• Having said this it does not mean that Scattered production has not drawbacks. The main problem or hindrance in such method is managing all the production units. All the manufacturing firms must produce the parts at the same time or whatever the time is allocated. Different manufacturers will have different methods of production hence aligning and managing all the plants become a bottleneck. Moreover the material used for all parts by all different plants should be of same standard. Hence quality check becomes vital.

Well in the end ,what we can conclude is that production line also plays vital role in working of the organization. A correct and smartly fitted production technique and be your Firm’s COMPETETIVE ADVANTAGE.

CHEERS

RMN
Remin

mumbai dreams

One does not realize the importance of things one has unless one loses it!

This is what exactly happened to me when I moved to Bangalore for pursuing my Masters. For 22 years, I stayed in aamchi Mumbai .I stayed just like any other Mumbaikar- cursing the bad traffic, bad mouthing the state government, sweating throughout the day, sighing helplessly when I flew in air and fell back on the seat even though the auto gently touches the potholes on highways, fighting with auto drivers for not having one rupee to give back, battling with the erratic monsoons, getting paralysed for 30 mins in 8.35 local train from Goregoan to Dadar.

I kept wondering WHY? Why people still keep coming to Mumbai?

The answer is ‘Freedom’. We, Mumbaikars excise all kind of rights bestowed upon Indians by the Constitution (Ok! I have cutcopypast-ed this line from a civic textbook). That’s what differentiates us from rest of the Indians. You can wear a shirt, a Capri, a pair of Kolhapuris; with a muffler around your neck. Color your hair with purple. Roam on the streets even at midnight without a care. Gals will agree with me. Wanna leak? This financial capital of India becomes your urinal. Celebrate any thohar (festival) of your choice. Wanna sing? What are doors of local trains for? They are the platform for your singing talents (also for some other talents too!).Eat pan and paint the town red. Wanna venue for your birthday-House, Terrace, Streets, Train, Hotel or a Pub! Do Science in 12th in Sathe; BSE in Ruia; MBA finance in SIES; work as a Fashion designer for Lakme Fashion Week. Committed? Kwel! Single? FUNtastic for you! No worries for reading & laughing aloud on NV Jokes in a public place.

A Non Mumbaikar may feel we are much free-er than they are. But according to me it’s our ATTITUDE that makes us special, isn’t it? Mumbai changes one’s attitude towards life. It makes one (rather forces) to be more open to life. It teaches you that you cannot hold anything for a long time. Eventually you have to let it go. It will glorify you for your achievements. Also it will condemn for your wrongdoings. Still it will give you a chance to start anew. Everything is short lived .You can get inspiration from every Mumbaikar- be it a Chaiwala Bhaiya serving hot cutting tea and vadapav on a rainy day, a Nepali watchman guarding your house (even though he is sleeps when a dog barks), a Gujarati Seth flattering you to take sari from his shop, Sardar cab driver giving advice on how to travel in Mumbai or a Marathi Bai gossiping more, cleaning less and taking 366 out of 365 days off in a year!

Mumbai is a big world in this small world. It welcomes anyone and everyone. All u have to do is loosen a bit and then you too can dance to its music even if you have 2 left feet. Who says opportunity knock door only once? Opportunities keep slapping everyone’s face left, right & centre. As I said earlier it’s our positive Attitude what matters the most. You have to dream with eyes open and work even when you shut your eyes. It’s a city of dreams. You have a dream, accompanied by passion and faith in yourself; nothing can stop you from materializing your dream.

The city makes you shed your fear, phobia, excess weight, laziness, anger, pessimism also your hair. But it gives you more than you expected to get which cannot be measured by any currencies. It makes you wiser than King Solomon, stronger than Hulk (I not guaranting physically), kinder than Mother Teresa, smarter than Birbal.

The city makes each person a HERO for himself and for others.

Remin Saldanha

to know more about forward and future contracts

http://www.diffen.com/difference/Forward_Contract_vs_Futures_Contract

Love Story of Luxury Brands & Social Networking

Firms of Luxury brands have always been in a tug of war between how to promote their high end luxurious products to large wide mass of people without losing the aesthetics and the perceived brand value. It is always seen that luxurious brands don’t go for mass marketing because it reduces its value. Such goods are meant to be exclusive toys of the high class society which are not easily accessible. Imagine Gucci putting its product images on the local bus. Damn!!! The concept of luxury to exist is it to remain elitist, distinctive, exclusive and rare. In other words luxury evokes an aura of the extraordinary, the unattainable or dream for most who remain outside the target market segment.

The luxury shopping experience differs entirely from the conventional shopping experience in that customers require a high sensory interaction with the products by experiencing the touch, feel & smell of the item. It is difficult for the web to recreate the same feeling online. Moreover, Social Networking sites have been traditionally viewed as mass marketing method used to gain attention to the consumer products. Generally the people who buy luxurious goods are of higher age group how are uncomfortable of using social networking sites. But those are now nomadic thinking style…

According to Nielson 2007 published by Emarketer the affluent users using social networking sites will increase 27% in 2007 i.e. roughly around 58 millions in US. Same holds true for other countries. Most of these affluent consumers use internet for the information access and are online 24 7. Also the age of affluent users is decreasing because of high level of incomes; more of younger people are able to afford luxurious brands. These young affluent consumers are frequent users of Web. Moreover, affluent consumers are generally located around the world .They can’t be going to the exclusive retail showrooms in limited countries. This is where Social Networking sites or any other sites have cashed in.

The sensorial customer experience can be re-created and controlled on the website: thanks to the visual and sound experience, the usability, customer service and customization, all key when making a luxury brand's venture on the Internet a success. Gucci ,D&G, Lamborghini all have their own communities and huge fan following in the facebook, orkut , e-luxury.com, ice.com or mondera.com. This has created an easy access to information about their latest products and events to their affluent consumers helping them get connected to their customers 24 *7.This deepens customer loyalty. Moreover they generate fan following from the potential customers and interest from wide section of consumers who cannot afford them but still fantasize about these brands.It helps firms understand the the different type of customer wants by constant interacting with them. This can help to customize products which act as a vehicle that drives to higher level of customer satisfaction.

Check out http://mashable.com/2009/01/21/best-twitter-brands/  for understanding how tweeter helped 40 brands to spread their message and establish customer relationship.

Objectives that can fulfill by the using social networking sites can

1. ·         Customer Retention, Loyalty , satisfaction
2. ·         New markets, New customer base(demographics), Tapping potential customers
3. ·         Building brand loyalty and brand value
4. ·         One of the cost efficient way of promotional and communication channels with high returns.
5. ·         Taming competition and adapt to the market changes
6. ·         Social media optimization and marketing is usually community-specific. It doesn’t interfere with any other methods of getting traffic to your website. It can and will fit perfectly with an advertising campaign targeting other websites or search engines.

RMN

REMIN

Is Greece the other Atlantis???

Greece, the mother of democracy is in the danger of extinction. Greeks, infamous for asking why should we follow Rules, Honey?, are now pondering whether following rules could have saved their falling face .Whether they could have averted this financial turmoil they are into?

The public sector accounts for about 40% of GDP. The service sector contributes 75.8% of the total GDP, industry 20.8% and agriculture 3.4%. Greece's main industries are tourism and shipping.

Some facts about Greek Economy.

·         For the year 2008, according to IMF, Greece is the 27^th largest economy in the world by GDP while thirty third by PPP.

·         22^nd highest standard of living in the world

·         24^th most globalized country in the world

·         Its a high income economy country

·         25^th in HDI

·         22^nd in high quality of life by the Economist.

In spite of such scar free statistics mentioned above Greek had loopholes. Because of which it has fallen in a deep pit and neither any hand nor a stick is long enough to get them out .That’s what the present situation looks like. Greek has always suffered from inefficient bureaucracy, tax evasion and corruption in each and every system put in place. This is not limited to government level but the everyday person is more adept at evading taxes than anywhere in the world. In 2004, Eurostat, the statistical arm of the European Commission, after an audit performed by the New Democracy government, revealed that the budgetary statistics on the basis of which Greece joined the European monetary union (budget deficit was one of four key criteria for entry), had been massively under-reported by the previous Greek government .

The main reason for the financial debt of the Greece is years of unrestrained and careless spending by the government, cheap lending ,subsidiaries and failure to implement financial reforms. Moreover this financial turmoil the world was facing also added to their agony, intensifying and magnifying their crisis. The country’s deficit is 12.7%. It has a national debt of about €300 billion ($413.6 billion), is bigger than the country's economy [$343 billion (nominal, 2008 est.)]; with some estimates predicting it will reach 120 percent of gross domestic product in 2010. 

What does it means. Will anyone invest in such country that is unable to meet its debts?  Will anyone lend money or loan to such a country that has fallen to the lowest level? The answer is clearly NO. Due to which, Greece is struggling to pay its bills as interest rates on existing debt rise. The problem does not hover on Greece alone but the entire Europe. This has affected the euro.

Thus to protect the EURO value, Euro Zone led by Germany and IMF have decided to bailout Greece by Bailout package may be worth around 20 billion euro (US$26.8 billion). This has not ended Greece agony. The government has implemented harsh measures to curb their spending and hiked all taxes, raised retirement age by 2 years, pay cuts and new tough tax evasion regulations. Of course, this has not gone down well with Greek citizens causing unrest in the country. There has been strong resistance from the citizens. Also there is a fear that maybe this may lead the economy into a recessionary spiral that will spin downward faster than Sisyphus' lost boulder.

Mr. Jared M. Diamond would now say this is the classic example of economic collapse of the society. "A company can go bankrupt. Individuals go bankrupt. But sovereigns don't," explains Jan Randolph, head of the sovereign risk group at IHS Global Insight. "They stop paying and don't service their debt obligations like they're supposed to. But people still grow carrots, people go to school, traffic lights work."  In December 2001, Argentina defaulted too. After its debt debacle, and the eventual devaluation of the peso, which made its agricultural exports cheaper, Argentina recovered too, growing 9% in 2004. Despite the years of negative publicity, it also became a tourist hotspot-the cheap cost of living and a favorable exchange rate made it a favorite for American tourists and it experienced double-digit increases in incoming visitors. Ditto in the case of Uruguay and Russia.

 Thus it means there’s hope for Greece too? Certainly Yes!!! But there’s a need for drastic change of the attitude ‘why should we follow Rules, Honey?’ They have to let go their luxuries and the pride for little while and accept the fact that they in deep shit. I wonder what they are agitating and protesting for. What is it that they want? To not take the package and continue? 

Also the government has to take drastic step to change its economic revenue. How long can it sustain on Tourism? Not for a long time. It has to invest in other sectors heavily. Moreover private sector should also be brought into the picture. This would reduce the pressure on the Greek Government. Most importantly, a proper system for taxation is the need of the hour. 

All this will take a long time to settle in. Till then what we can hope is that Greek does not disappear as Atlantis.

Failure of Apple iPhone in India due to Marketing Myopia

India is the world’s 2nd largest and fastest growing telecom and handsets market. Approximately 120 million handsets are sold in India every year, out of which, around 4% to 5% are smartphones.
Clearly, India is a huge market and opportunity for Apple to establish itself in India. It could even given a tough fight to Nokia India’s monopoly. Nokia dominants the market having around 60-70% share in India.
To capture the market share, Apple brought its iPhone somewhere in September 2008, along with the service provider Bharti Airtel Ltd and Vodafone Essar Ltd.
Inspite of having such huge brand name, Apple's iPhone hasn't even made a dent. Why? This is because Apple had imported around 50,000 phones at the time of the launch in September 2008, but had only managed to sell around 11,000 units. Shocking, isn’t it?
The figure says it all. iPhone’s launch in India has been considered the biggest failure of a top-notch brand in recent times .
But what went wrong?
After referring many articles on different website, it is seen that Apple got everything wrong, starting with pricing, marketing communication to the sales & distribution model. But a careful study of all the articles, comments and reviews of launch iPhone, one realizes it is the classic case Marketing Myopia. There was a very weak link as far as consumer confidence was concerned. The company failed to strike a connect with Indian consumers.
The failure of iPhone in India, clearly indicates that Apple didn’t not do its homework before entering the Indian market. It did not bother to know the Indian consumer needs ,wants and behaviour due to which they were belted severely, which is shown by the poor sales.
Let’s analyse where Apple went wrong.
The first problem was the pricing. Apple CEO Steve Jobs had made a public announcement that iPhone would be priced at $199 globally (about Rs9, 490). But iPhone was launched in India at Rs.31, 000 for 8GB. That came as a shock to all Indian consumers, who are price sensitive. Indian consumers do not have that high buying power. Wasn’t it like black marketing? one thing that is being sold under $200 in International markets is being sold at 4 times in India .Moreover, iPhone is not a luxurious item. It is just another phone with camera, Internet, and music player. Customers thought they would get the cheaper price and were disappointed that it didn't apply to them.

The second problem was in Apple’s distribution and sales strategy. Unlike in the US, where a month-long marketing and advertising blitz preceded the debut of the iPhone, Apple didn’t run any of its own campaigns in India. All the marketing communication was left to the two licence holders, Bharti Airtel Ltd and Vodafone Essar Ltd , who didn’t have any experience in the retail selling of handsets. While Airtel ran commercials outsourced from Apple for few weeks on a few TV, Vodafone used the envelopes of the mobile phone bills sent to customers to tell them about iPhone’s entry into India. Airtel spent only around Rs3-4 crore on iPhone’s advertising. On average, they spend around Rs14-15 crore on their new launches.Distribution in India is a convoluted process involving several different retailers that employ multiple strategies to reach the many different types of customers that are found in India-article in livemmint.com. Apple and its carrier partners (Bharti Airtel and Vodafone) didn't promote the iPhone as aggressively as was done in other countries. Indian customers have to be forced to buy their products. Even if you’re selling a niche product, the communication needs to be there on what’s on offer and to get (make) people curious. Otherwise Indian buyers won’t be excited very easily.
MNP (mobile number portability) which will be introduced soon in India will allow users to change service providers without changing the number. But service provider sold with lock in clause. This meant iPhone buyers cannot retain their handset should they wish to switch operators despite having paid the cost of the handset upfront. Unlike US which predominantly a post-paid market where consumers buy the handsets from service providers under different deals, India is mainly a pre-paid market. Here, most consumers change their handsets, and even service providers, quite frequently in favour of cheaper options. They do not want to be married to a number and a phone. This did not go down well with consumers.
Texting or SMS is the hottest mobile thing in India – It is not so comfortable with the touchscreen keypad in the iPhones. No Video Recording – iPhone sure comes with a camera but not sophisticated enough for video recording which is so much fun for all. Mobile Web is not big in India but its growing – mobile internet usage is still small compared to PC internet usage. Which requires 3G and 3G is still not introduced in India. Why will any pay for something which cannot be used? Users don’t spend much on Value Added Services such as ringtones, songs etc – Indians spend a lot on phones for sure but mainly for calls and messages nothing more. Many features which are a given in a phone that costs you Rs4, 000 are missing in iPhone. Video recording, cut paste, sms forwarding options are lacking which are essentials for any Indian customer.
Furthermore, Apple can come into cellphone business in India until it manages to infiltrate the school and college campuses. Here is where Apple made mistake not targeting the right segment.

Conclusion:
Apple felt it had the right product for the Indian market and it was blinded by the success in other countries .Due to which it failed to spend more time in understanding the Indian consumers. It couldn’t connect the needs and wants of the Indian consumers due to its narrow understanding of Indian telecom market hence it failed to make a mark in India with its iPhone. The solution for this situation will be if Apple takes initiative to consider Indian market as important as US market. It has to provide customer creating value satisfaction, not just give the task to some inexperience service providers. Most important, it has to understand that Indian customers is different from US customers ,hence has to adapt to the requirements of the Indian market.

Cheers RJFS

References:
· Levitt, T. (1960). "Marketing Myopia". Harvard Business Review.
· myopia/11446-why-apple-iphone-failure-india.html
· livemint.com
· cnet news.com
· cellbharat.com

The Asian Link , causing the Recession

I came across a site The Indian Blogger:Life & Times of India.... The author has written a awesome article about reason for Last year recession. I have taken this article from his site . An excellent read...
Now we all the story...In US, a boom in the housing sector was driving the economy to a new level. A combination of low interest rates and large inflows of foreign funds helped to create easy credit conditions where it became quite easy for people to take home loans. As more and more people took home loans, the demands for property increased and fuelled the home prices further. As there was enough money to lend to potential borrowers, the loan agencies started to widen their loan disbursement reach and relaxed the loan conditions. The greed factor came in .the loan was then given to customer without checking their repaying capacity...But this had to come to end someday. About that i shall write later...
What was intersting about the this article is that he says how US got such a large inflows of foreign funds?
For this we have to go back to 1997-98s. At this time, the tiger economies of Asia (a term used to refer the countries of South East Asia like Thailand, Malaysia, Indonesia etc...) suffered a major economic crisis. Several countries of South East Asia had developed worrying financial weaknesses which were the results of heavy investment in highly speculative real estate ventures, financed by borrowing either from poorly informed foreign sources or by credit from under regulated domestic financial institutions.
The crisis began with wrong banking practices. In those countries crony capitalism (where borrower had the connections with government) became too dominant. The minister’s nephew or the president’s son could open a bank and raise money both from the domestic populace and from foreign lenders, with everyone believing that their money was safe because official connections stood behind the institution. Government guarantees on bank deposits are standard practice throughout the world, but normally these guarantees come with strings attached. The owners of banks have to meet capital requirements (that is, put a lot of their own money at risk), restrict themselves to prudent investments, and so on. In Asian countries, however, too many people were granted privilege without responsibility, allowing them to play a game of “heads I win, tails somebody else loses.” And the loans financed highly speculative real estate ventures and wildly overambitious corporate expansions.
This bubble was inflated still further by credulous foreign investors, who were all too eager to put money into faraway countries about which they knew nothing (except that they were thriving). It was also, for a while, self-sustaining: All those irresponsible loans created a boom in real estate and stock markets, which made the balance sheets of banks and their clients look much healthier than they were.
However, this bubble had to burst sooner or later. At some point it was going to become clear that the high values Asian markets had placed on their assets weren’t realistic. Speculative bubbles are vulnerable to self-fulfilling pessimism: As soon as a significant number of investors begin to wonder whether the bubble would burst, it did.
So Asia went into a downward spiral. As nervous investors began to pull their money out of banks, asset prices plunged. As asset prices fell, it became increasingly doubtful whether governments would really stand behind the deposits and loans that remained, and investors fled all the faster. Foreign investors stampeded for the exits, forcing currency devaluations, which worsened the crisis still more as banks and companies found themselves with assets in devalued baht or rupiah, but with liabilities in lamentably solid dollars.
In 1996 capital was flowing into emerging Asia at the rate of about $100 billion a year; by the second half of 1997 it was flowing out at about the same rate. Inevitably, with that kind of reversal, Asia’s asset markets plunged, its economies went into recession, and it only got worse from there.
Eventually International Monetary Fund (IMF) had to step in to save these economies. How these economies later recovered and at what cost is a different story. However, this crisis brought with it some major lessons for the Asian economies. One of the most important lessons for them was to create a solid Foreign Exchange Reserve so as to withstand the most volatile exit of the money from their markets. High reserves promise safety in a storm. Therefore, most major economies of Asia (including the big China and India) adopted a strategy of maintaining high forex reserve so as to ensure safety from any such crisis in future. This shift in priorities created a very interesting situation.
In the mid-1990s, the emerging economies of Asia had been major importers of capital, borrowing abroad to finance their development. But after the Asian financial crisis of 1997-98 these countries began protecting themselves by amassing huge war chests of foreign assets, in effect exporting capital to the rest of the world.
To say in other words, the Asian economy came in to a Saving mode. In order to maintain huge foreign reserve, they also started buying US securities. This resulted in a huge inflow of dollars into the US economy. As more and more dollars kept coming into the US economy from world over, the American investors started devising very sophisticated and innovative methods to convert the flood of money from Asia into a borrowing and spending spree for American consumers.
This Money was helped people to take more and more home loans ..which boomed the housing sector in US...
Thus it gives a brief overview of the crisis that helps us to understand the current mess in world as it is all linked.
cheers...
RJFS

DON't waste a good crisis...

this was the second presentation i heard today from another guest lecturer Dr. David J Urban ,who was from Virginia Commonwealth University. I like the title of his presentation. In short , it means find an opportunities in any crisis one encounters. He marvellously starts with saying that most of todays well kow companies and their products started in the times of recession such as Business Week, Axe Body Spray, IBM PC, FAst food Value Meal etc...
These companies could see beyond what their competitors could. hence they could survive till date. They could see the opportunities in the time of crisis....
Dr, Urban articulately helps to avoid mistakes commonly done during times of crisis
such as

• do not neglect innovation
• do not stop improving products
• do not stop training
• do not stop in investing in plants and equipments and their improvements.
• do not stop advertising and marketing
• promote consumer benefits

GLobalization is here to stay...

I was hearing a lecture by a guest lecturer Dr. Van R Wood from Virginia CommmonWealth University.The topic was on globalization . He gave some mindboggling Facts in the introduction. Some of the interesting facts which i could recollect were :

1. In the Population of 1.3 billion in China , there are 1300 people like you!!! In India with population of 1 billion there will 1100 people like you!!!
2. China will soon be No.1 English speaking country in the world.
3. In next 8 minutes....60 babies will be born in US, 244 babies in China,351 babies in India.
4. According to Department of Labor US, a person with average age 38 will have shifted about 10 - 14 jobs.
5. The top 10 in demand jobs in 2010 didnt existed in 2004.
6. The amount of new technical information doubles every 2 years.
7. The shelf life of education is becoming shorter.
8. In 2006, engineers produced by China- 6,00,000 , India- 350,000, US- 70,000.
9. 30000 new books are published daily.
10. 540000 words are added in English since Shakespear.
11. 2.7 billion searches are performed on google each month.
12. Perdication are that by 2013 a supercomputer will be built that exceeds the computering capabilities of the Human brain.
13. In short...what we are witnessing is CHANGE .... A shift is bound to happen....

He goes into the history talking about 3 great movement of capital in the world. the first shift was in 19th - 20th century where money from Europe poureed into the New world. the Second shift was in 1950- 1960s were money poured from US into Europe and East Asia. Now we are currently in the Third Shift . it is the great expansion of global economy all far the largest it seems. It is " RISE OF THE REST."

From 2006-2007 about 124 countries grew at 4 % or more out of which 30 countries are from Africa. Income per person is on rise. the standard of living has been rising. Poverty is slowly reducing. China has lifted 400 millions out of poverty. The economies have opened up to the world outside. the global trade has increasedhas increased by 133%. Goldman Sachs predicts that by 2040 Brazil , Russia, China, India, Mexico will have largest and dominating economies in the world. gone are the days when economies were differentiated as capital or labor. What distinguish economies today are "ideas".

Dr. VAN concludes that Why globalization will stay. Majority of market soruces of goods and services lie outside of one's country and your are forced to get them if you want to prosper. Competition is fiercely rising around the world and what can make you competent is by sharing and obtaining knowledge and resources from outside .

it was indeed an interesting presentation . Of course, some had nice power nap during the session ( our general secretary, King Khan, Gorgi... lol!!!).

But by the end of the presentation i was wondering till what extend globalization will go? will there be end to globalization? How will the world look at the end of globalization?

Are there any answers??