Posts filed under 'Economy'
Growth and inflation in Asia
IMA Asia’s notes always provide a useful perspective, given that Asia is likely to be the region that will lead the world out of recession. What they’re saying now is that “2010 is set to be a bumpy, complex and challenging year for global markets and the MNCs that serve them. “
They forecast 2010-2012 will be another 2-3 years of adjustment in Europe and North America. “We see no reason to lift our US forecast from 2.2% for 2010 and 2.8% in 2011.”
But Asia’s already growing to the point of inflation pressures. Says IMA Asia: “the outlook in Asia [is] improving with the prospect of strong demand growth by mid-2010 and rising inflation due to shortages of materials, skilled staff and shipping capacity.”
- China’s GDP growth forecast is 9.7% for 2010 and 9.4 % for 2011. Its inflation (measured as CPI growth rate) is only 4-4.5%.
- India, though, is looking at inflation as high as 15% in 2010 and 9% in 2011, off of a GDP growth rate of 7.5-7.8%.
With such a mismatch in the prospects of two major regions, the uncertainly is “reflected in wildly diverse outlooks for commodity markets.” Forecasts for growth in global oil consumption this year range from 120,000 – 1,400,000 barrels per day, with the price by early 2011 either close to US$71 or $100 .
Fasten your seat-belts.
Add comment March 10, 2010
Bt Brinjal and the Great GMO Debate
India’s considering legalizing genetically modified brinjal – the vegetable otherwise known as eggplant or aubergine. (Or baingan or kathirikai.) It’s a popular vegetable in Indian cuisine.
In October 2009, the Genetic Engineering Approval Committee (GEAC) recommended approval for transgenic eggplants that would resist the shoot borer, a major pest. (It doesn’t protect against bacterial wilt, a different major pest.) The main US player, naturally, is Monsanto, through the Indian company Maharashtra Hybrid Seeds Co (Mahyco).
[Edited to Add: On Feb 10, 2010, the government put Bt Brinjal on indefinite hold. There were some reports of planned 180-day rat studies instead of the usual 90-day ones.]
There’s been a storm of protest. Activists, farmers, and political leaders are upset. Some have actually called it poison.
Minister for the Environment Jairam Ramesh has asked for further investigation and public input, while Minister for Food and Agriculture Sharad Pawar is pushing for its introduction.
Meanwhile, the Chief Ministers of the three largest eggplant-producing states have said they do not intend to grow Bt Brinjal. (West Bengal, Orissa and Bihar together account for over 60% of India’s eggplant production.)
Why the controversy?
3 comments January 25, 2010
Naan Dog at Narita
Yesterday, at Narita airport in Japan, I encountered an interesting new product: The Naan Dog.
I was intrigued. It spoke of innovation, globalization, and adaptive palates all at the same time. The Naan Dog product was clearly fusion, though I wasn’t sure what had fused with which.
The Naan has clearly become a common enough product that people understand the word – even in Japan. And “dog” implies that all English-speakers would understand the word to mean a sausage, derived from the American “hot dog,” rather than as something canine.
Naturally, I ordered one. It was a sausage on a mini-naan – exactly as pictured – garnished with Japanese curry sauce (derived from the British version of Indian curries) instead of the traditional ketchup and mustard. So I’d say its roots are Germanic-American/North Indian/ Japanese-British. [ETA: Or maybe Pakistani, as much as Indian. The "naandog" in decorative script border at the top of the poster may have been designed to resemble Urdu.]
It tasted pretty much as you’d expect. Not bad, for an innovative fast food eaten standing at a counter at an international airport.
Edited to Add: My friend Srilata wanted to know if it bore any relation to Slum Dog.
Naan Dog Millionaire? Could happen. Even if only a yen-millionaire.
2 comments November 23, 2009
Versace and Video-games
Two news items caught my attention recently.
Versace, which opened a store in Mumbai in 2006, is looking to expand in India. It opened a second store in Delhi, reportedly one of their largest outlets worldwide. And it’s trying for an airport terminal store in Delhi. All this when the company globally made a loss because of the economic downturn.
Meanwhile, Sony launched its first Indian video-game earlier this year: Hanuman, Boy Warrior. (Predictably, there was an objection to having a deity as a video-game character. Unpredictably, the objection came from a US-based person.) Sony plans another half-dozen titles. The company’s India country manager said that India had the world’s largest untapped potential for videogames.
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India’s unsaturated markets are clearly a draw, recession or not. Its luxury market may be thin, but there’s still enough to attract some brands – and keep them.
And while a Price Waterhouse survey shows that companies in India are cutting costs to deal with the recession, this doesn’t seem to have stopped the expansion. For example, Accenture is planning to hire 8,000 people in 2010, bringing its total Indian staffing to 50,000.
Add comment November 12, 2009
India's Prosperity
The UK based Legatum Institute conducts an annual prosperity survey of 104 countries, India and China among them. It measures prosperity not just as wealth, but includes factors such as health, safety, democracy, and social capital – the confidence in relationships. In fact, it considers nine separate indicators. According to the Legatum website, “The nine sub-indexes are:
- Economic Fundamentals – a growing, sound economy that provides opportunities for wealth creation
- Entrepreneurship and Innovation – an environment friendly to new enterprises and the commercialization of new ideas
- Democratic Institutions – transparent and accountable governing institutions that promote economic growth
- Education – an accessible, high-quality educational system that fosters human development
- Health – the physical wellbeing of the populace
- Safety and Security – a safe environment in which people can pursue opportunity
- Governance – an honest and effective government that preserves order and encourages productive citizenship
- Personal Freedom – the degree to which individuals can choose the course of their lives
- Social Capital – trustworthiness in relationships and strong communities.”
An application on its website allows a visual comparison of individual countries along nine axes. This picture is based on the 2009 survey. The green boundary is India; the blue one, China; and (just for reference), the red one is the US.
India (Green); China (Blue); the US (red)
What’s particularly interesting is how the separate social and economic paths India and China have taken reflect in their scores. India is ahead in democratic institutions, personal freedom, and governance. It also scores very high on social capital, indicating a society where relationships are valued and trusted. Even the poor may be rich in family and friends. China scores better on economic indicators and innovation – and also in such public welfare matters as safety, health, and education.
Add comment November 3, 2009
China and India: The Megamarkets
Neither China nor India are easy to enter or operate in. Yet, global rebalancing may force companies to plunge in anyway, ready or not. It’s a tough decision.
I’ve been working on an IMA Asia paper on these two hot-spots on the global business map. Their markets are growing rapidly, and they’re a source of products (mainly China), services (especially India) and innovation. Chinese and Indian firms are becoming global players.
Western multinational companies (MNCs) probably should re-orient their strategies to this global rebalancing, strengthening their own positions in the mega-markets. But it’s complicated.
Based on interviews with Asia-based senior executives of Western MNCs, the paper finds four main reasons why their companies find it difficult to make their corporate strategies Asia-centric:
1. Head offices have a Western-centric mindset, and still think of Asian markets – even China and India – as add-ons.
2. India and China are probably among the world’s most complicated countries, but each is individually complicated. Experience in one doesn’t necessarily contribute to success in the other.
3. Both places need companies to commit massive resources to each if they’re to be successful, so only the largest companies may be able to roll out strongly Asia-centric strategies.
4. Planning a grand strategy is a lot easier than implementing it. Many MNCs entering China in the early days – when it became relatively open to foreign companies in 1979 – had Grand Strategies that failed spectacularly. This may contribute to Head Office caution about both countries, and skepticism in managers on the ground. These days, most of the companies interviewed prefer more gradual and incremental approach, based on organic growth.
Add comment October 25, 2009
Global Recovery, Global Rebalancing
IMA Asia’s revising its forecasts for economic growth. Its main scenario (with a 60% probability) is for a weak Asia-led recovery starting now, and edging up over the next three years.
Global GDP Growth - Three-year scenarios
The more pessimistic forecast, (20% probability) is for a double-dip recession, triggered by policy failures in advanced countries. The growth comes from elsewhere, mainly from China and some from India.
The optimistic scenario, also at 20% probability, relies on fast reforms in the advanced countries couple with strong demand in Asia.
But it won’t be a return to the status quo ante. The buzzword now is “Global Rebalancing.”
China will gain market share, at the expense of advanced countries (mainly the US). So will other developing countries; but IMA Asia doesn’t think highly of the BRIC classification (Brazil, Russia, India, China) beloved of international brokers. It notes that China is likely to gain double the global market share of the other three combined.
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While China’s growth is surging (well, surging a little less now, but still a lot by comparison with other major economies) it’s also one of the few major markets that foreign firms find even more complicated than India’s.
I think the global rebalancing is what no one in the advanced countries – including the US – wants to really think about now. Many people are looking for things to go back to what they were. It’s unsettling to think about the economic lead shifting — again. But what it will mean for many companies – especially medium to large in size – is that China and India must be grappled with.
1 comment October 15, 2009
CIBIL: Consumer Credit Rating
India’s made an impressive advance in credit rating for individuals in only two years, with the credit-rating agency CIBIL. It still has glitches, but it’s trying. When I was researching my book in early 2008, Indian lenders were still grumbling about problems in assessing the individual credit-worthiness. Yet with booming consumer markets, companies sold all kinds of durables on installment plans.
In the US, consumers who fail to pay know it’ll hurt their credit rating, and their ability to get future loans or even to rent housing or get jobs. In India, without such a threat, lenders relied on collection agencies, some of whose strong-arm tactics notoriously hit the headlines. They were not quite as bad as Mafia enforcers, but may have come close.
CIBIL, a credit-rating agency started by State Bank of India, HDFC, Dun & Bradstreet, and Trans-Union (the last two being the US companies or their Indian affiliates), started consumer credit reporting in 2006/2007, but it hadn’t reached critical mass. Now it has.
(CIBIL is now owned by a number of banks and financial institutions.)
Of course there’s a chorus of complaints from consumers who have run into problems of poor data.
Add comment September 30, 2009
Indian Ports – Muddling Through Somehow
In fiscal 2008-09, India’s twelve major ports handled only 2% more cargo than the year before. (That compares with 12% growth the year before.)
Perhaps it’s just as well. At 530 million metric tons, the major ports were running at just over 100% of their capacity. That, and the relatively unsophisticated cargo-handling, means it takes a ship 5-7 days on average to unload at one of those ports. In Singapore, it takes 6-8 hours.
Once the material is off the ship, the problem’s not over: there’s a rail bottleneck. So getting the goods inland takes time, too.
The government has major plans to improve the ports, but a recent assessment by ICRA, a credit rating agency, doesn’t think they’ll make their targets. It’s taking too long. (But ICRA also thinks cargo volumes won’t grow as fast, so service might improve anyway.)
Perhaps the longer-term solution will come from some subset of the 200 or so ports controlled by the States, which already process more than a quarter of India’s sea-trade. Unlike the 12 major ports, whose tariffs are set by a governmental authority, these port can set their own prices. The state governments have less funding to develop their facilities, so a few are inviting in private sector investors, including foreign-owned companies. One example is Gujarat Pipavav Port Ltd, 54.8% owned by a unit of the Danish company AP Moller-Maersk A/S, which operates Pipavav, a port in Gujarat.
Infrastructure is perhaps the single biggest obstacle in India’s rapid growth path. Ports. Airports. Power. Water. Roads.
Yet, I’m more optimistic than I sound. We’ve been talking about infrastructure shortfalls for decades, and yet India’s managed positive economic growth year after year. India’s always been particularly good at workarounds and muddling through.
Add comment September 21, 2009
Nielsen: The thin layer of Indian affluence
Companies planning on selling luxury goods in India should consider Nielsen’s August 2009 survey. For some, it will be a reality check.
When I read the press release from Nielsen’s survey of Upper Middle-class and Rich (UMAR) households in India, I thought they’d made a mistake… maybe lost a decimal point or so. They figured India had 2.5 million Upper middle-class households, defined as those that both owned a car and a computer. I thought it must be understated; after all, India is reportedly making 2.8 million cars each year. (Income is considered to be widely under-reported in India, so surrogate indicators are used in surveys like this one.)
Nope. I checked with Nielsen, and they stand by their survey, which covered the 35 largest cities in India.
India has perhaps 220 million households in total; 65 million in urban areas; of which these 35 cities have about 26 million households. Around 10% of the households of these 35 cities are affluent.
Nielsen note that India has a stock of 14.5 million cars on the road, and 7 million computers on people’s desks. The intersection of those two sets, they estimate, is 2.5 million.
From this 2.5 million, they break out two further segments:
- The 200 thousand households of the Upper Upper middle class, which not only own a car and a computer, but also an LCD television; and
- the 100 thousand Rich families, which own all those things and have taken at least one holiday overseas.
For companies seeking to attack India’s luxury goods markets, this is a reality check. While the magic of large numbers – the 1.2 billion population – certainly exists, for many international consumer goods companies, their markets will be here: In the top 35 (or even just the top 5) cities; with consumers numbering in the hundreds of thousands rather than in the millions.
According to the survey, the top ten cities were: Delhi, Bangalore, Mumbai (Bombay), Chennai (Madras), Hyderabad, Kolkata (Calcutta), Kochi (Cochin), Pune (Poona), Jaipur and Ahmedabad.
8 comments September 7, 2009
