Thursday, April 30, 2009

"Pakistan" the new buzzword!!!

While growing up, I saw Indian foreign policy overly concerned with getting "Kashmir" discussed in the world forums. There was a strange reluctance in Indian government to discuss Kashmir and the whole of Indian foreign policy effort was spent in making sure that Kashmir word is not spoken either at United Nations or in the bilateral talks. I remember the opposition parties making issues whenever any bigger power foreign minister uttering the word and the Indian foreign minister spending all his energy to convincing the country that there is no internationalization of Kashmir issue. The argument put forth was that Kashmir is not the issue but Pakistan is and the discussion shall be performed on how to stop the increasing islamisation of Pakistan and make it stable. But the top powers never listened and we kept on wailing. I found it demeaning the way the top powers treated India on this aspect and the use of Kashmir buzzword as a way to let Pakistan score points.
Now the situation has reversed. After September 11 and the ouster of Taliban from Afghanistan to Pakistan, we see Pakistan becoming the new buzzword. Being stuck with the television where the only watchable channels are CNN and BBC, I have observed the increased frequency of usage of Pakistan as the new hot spot of world problem other than Iran, Middle East and in some measures North Korea. The American President Mr. Obama has emphasized that the war in Afghanistan is the top priority and Pakistan-Afghanistan is the new axis of the same problem - Talibanisation. Gordon Brown also talked on similar lines when he visited Afghanistan and Pakistan in the last month. All the TV military experts and opinions (source: nytimes) are speaking in the same tone.
So now we have a situation where what Indian foreign policy wanted has been placed on their plate by the unfortunate circumstances. Kashmir has taken a backseat and Pakistan is the new flashpoint. It will be very interesting to see how the Indian foreign policy is shaped by this new circumstance. There has been talks of including India in any discussion on Afghanistan both by the White House and opinions in the print media. And now it is incumbent upon India to take the lead and take the seat of superpower in Indian subcontinent which it aspires to become.

Monday, April 27, 2009

"Diamonds are forever"

This article spanning seven pages is one of the most interesting piece I have read in recent times. It explains how the advertising campaign "Diamonds are forever" was coined and successfully advertised throughout the world to make this one of the enduring and everlasting campaigns of the last century. The interesting aspect of this campaign is not only in its origination but how the advertising campaign was modified over time to make it in sync with operational strategy.
To quote from the article "Since "young men buy over 90% of all engagement rings" it would be crucial to inculcate in them the idea that diamonds were a gift of love: the larger and finer the diamond, the greater the expression of love. Similarly, young women had to be encouraged to view diamonds as an integral part of any romantic courtship.

Since the Ayer plan to romanticize diamonds required subtly altering the public's picture of the way a man courts -- and wins -- a woman, the advertising agency strongly suggested exploiting the relatively new medium of motion pictures. Movie idols, the paragons of romance for the mass audience, would be given diamonds to use as their symbols of indestructible love. In addition, the agency suggested offering stories and society photographs to selected magazines and newspapers which would reinforce the link between diamonds and romance.
"
............"Since Great Britain has such an important interest in the diamond industry, the royal couple could be of tremendous assistance to this British industry by wearing diamonds rather than other jewels"...............
Another interesting aspect is that how diamonds were made popular in Japan. To quote "Until the mid-1960s, Japanese parents arranged marriages for their children through trusted intermediaries. The ceremony was consummated, according to Shinto law, by the bride and groom drinking rice wine from the same wooden bowl. There was no tradition of romance, courtship, seduction, or prenuptial love in Japan; and none that required the gift of a diamond engagement ring. "
Pretty difficult for a company where your product is not part of the culture and you have to start a new tradition. So what De Beers worked out a slow but steady information campaign where diamonds became an integral part of advertising campaign. To quote "J. Walter Thompson began its campaign by suggesting that diamonds were a visible sign of modern Western values. It created a series of color advertisements in Japanese magazines showing beautiful women displaying their diamond rings. All the women had Western facial features and wore European clothes. Moreover, the women in most of the advertisements were involved in some activity -- such as bicycling, camping, yachting, ocean swimming, or mountain climbing -- that defied Japanese traditions. In the background, there usually stood a Japanese man, also attired in fashionable European clothes. In addition, almost all of the automobiles, sporting equipment, and other artifacts in the picture were conspicuous foreign imports. The message was clear: diamonds represent a sharp break with the Oriental past and a sign of entry into modern life."
And the next part of the story is the icing on the cake. De Beers and its allies lost their monopoly over diamond trade when diamond mines were discovered in Siberia. De Beers entered into an agreement with the Soviets to maintain the single channel for controlling the world supply for diamonds. But Soviet diamonds were smaller and hence De Beers has to reconsider its advertising strategy from its earlier encouragement and advocacy of dimaonds of large size.
"A strategy for small diamond sales" was outlined, stressing the "importance of quality, color and cut" over size. Pictures of "one quarter carat" rings would replace pictures of "up to 2 carat" rings. Moreover, the advertising agency began in its international campaign to "illustrate gems as small as one-tenth of a carat and give them the same emotional importance as larger stones." The news releases also made clear that women should think of diamonds, regardless of size, as objects of perfection: a small diamond could be as perfect as a large diamond."
From an opionion poll conducted by the advertising agency, this very interesting insight was obtained which was exploited by the agency in its promotion. "Women are in unanimous agreement that they want to be surprised with gifts.... They want, of course, to be surprised for the thrill of it. However, a deeper, more important reason lies behind this desire.... "freedom from guilt." Some of the women pointed out that if their husbands enlisted their help in purchasing a gift (like diamond jewelry), their practical nature would come to the fore and they would be compelled to object to the purchase."
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"Man plays the dominant, active role in the gift process. Woman's role is more subtle, more oblique, more enigmatic...." The woman seemed to believe there was something improper about receiving a diamond gift. Women spoke in interviews about large diamonds as "flashy, gaudy, overdone" and otherwise inappropriate. Yet the study found that "Buried in the negative attitudes ... lies what is probably the primary driving force for acquiring them. Diamonds are a traditional and conspicuous signal of achievement, status and success." It noted, for example, "A woman can easily feel that diamonds are 'vulgar' and still be highly enthusiastic about receiving diamond jewelry." ............
A very interesting read....

Goldman and Morgan Stanley chart separate paths

http://www.bloomberg.com/apps/news?pid=20601087&sid=a.DWey.dMKrw&refer=home
The article at bloomberg describes the separate paths taken out by Goldman Sachs and Mogran Stanley in this crisis. While Goldman has increased its risk appetite by taking a higher amount as Value at Risk and reporting a record revenue of $9.4 billion, Morgan Stanley has maintained a conseervative stance pulling out of propreitary trading and decided to focus principally on its role as financial advisor and broker and in the process posting a loss of $177 million. Though the figures for profit and loss are debatable due to the murky accounting practices being followed by banks and hence are nor reliable, it is pretty clear that the banks have charted a different course in risk taking. Morgan Stanley CEO has said that the credibility of bank has to be strengthened and its current weak position warrants reduced risk taking and this policy will help the bank to reap dividends in the long term.

Goldman sources are of the opinion that the risk was there to take according to situations. The competition was less and the available large bid-ask spread in some securities make the risk taking a well planned strategy. And it is finally down to the firm's DNA. "Goldman is Goldman". The risk taking is part of the firm's gene and will remain so. Their offer of giving back the TARP money and hence get out of any possible government censure in future is part of its strategy to reward the risk taking behavior as they have done till now.

Which strategy is better- only time will tell? The market is fluid and dynamic and a servere downturn or upswing in the economy will decide. But this is an example of the distinction in business strategies advocated in times like these. One strategy will be to remain conservative, count your chickens, consolidate your position and keep on the lookout for the situation to improve. The alternate strategy is to use this times to increase your market share due to reduced competitive forces operating in the market place. Which strategy a firm adopts is entirely dependent on the circumstances facing the specific firm and the marketplace in which the firm is operating.

In this case, Morgan was in a more precarious position than Goldman during the crisis and hence a conservative stance is warranted but arent they in danger of losing market share and opportunity to earn precious revenues by following this stance... well time will tell........

Friday, April 24, 2009

Why keynes is popular during recession?

With this recession, we again see keynesiasm raising its head vis a vis monetarists and all the major governments including United States, Britain, China taking the path of spending out of this recession. In his landmark thesis, Keynes said that to get out of recession, fiscal measures are critical since that will lead to increase in demand and hence finally getting out of recession. Mr. Roosvelt followed the advice in bits and pieces and the notion of large government took centre stage in American politics. But during times of Regan, Margaret Thatcher, Bush, Clinton and Blair, monetarists took a precedence over Keyneisians and we saw the government taking a back seat letting the invisible hand of market to take care of business cycles. But with this recession , now both the American and British government has announced broad fiscal measures to start public spending and hence increasing the role of government in economy essentially following the prescription of Keynes disregarding the monetarists "who believe that government intervention is going to make the situation worse and the government shall allow the natural business cycle to take its own course".
The question is why keynes becomes popular whenever there is recessionary tendencies in the economy. The answer can be found in what types of government are in power. Britain is currently governed by Labor party whose leader Gordon Brown has distanced the party from "New labor" belonging to era of Tony Blair. The new budget with measures to tax the rich gives the notion that this Labor party wants to capture the imagination of policies using the socialist mantra of old labor with cries of class war etc. Similarly in United States, we have a democratic president who will be regarded as socialist if some of the republicans have their way. Certainly Mr. Obama is not a socialist but his policies are left to the centre where the belief in large government interventions in health care, education etc and taxing the rich being major part of his policies.
So after estabilishing that we have political parties in power in the top two developed countries which are left to centre and hence they are spending and taking fiscal maesures to spur the economy. But underlying this is why these parties become popular during recession. The reason why these parties are in power may be mutifold but I belive one of the reason is their love of keynesiasm during the times of recession. Recession invariably leads to increase in unemployment, worsening of living conditions of people etc. If the government follows the monetarists' advice, then the politicians will be telling their electorate that the misery is part of business cycle and this will pass and we shouldnt intervene because in long term, any measures hence taken will come back to bite us. Instead if the government follows Keynes, the politicians would be giving the impression of doing somethinng to ward away the recession. They will look busy and always announcing spending policies and the electorate will be safe in the notion that the politicians are doing something to get out of this economic condition.
This, I believe, is the major reason that the politicians in power would like to follow Keynes rather than monetarists and do nothing. Keynes make the politicians look powerful and that is what all leaders want. Either prove that they have powers to change the destiny of their followers or "give the impression" that they do have such powers.
Another reason that Keynesiasm works that the government fiscal measures increases the expectation of people that economy will improve since someone is doing something. The confidence in economy is a virtuous circle which has the power to finally bring the economy out of the recessionary cycle. Thats why possibly the talks of "green shoots" by all the politicians and bankers. The argument against this is that people may think that the government spending in long term will lead to higher taxes in future and hence one shouldnt invest now. But people generally are not long sighted and took these short term fiscal measures as confidence building and start investments and spending.

Wednesday, April 22, 2009

Management steps during recession

Possible management steps in recession in decreasing order:
Reduce operating costs
Increase productivity
Introduce new products/market offerings
Reduce capital investments
Restructure
Hire talent that otherwise would not have been available
Seek merger or acquisition opportunities
Leave certain markets
Increase Hedging
Other
No steps


No action is the step followed by majority of the companies since the belief is these are temporary changes or even if permanent changes then what else they can do. Communication to investors is one of the prior steps to increase confidence among investors before share buy back.


(Source: One of the online polls )

Is globalisation under pressure to survive?

The globalisation in its second birth after the highly globalised world economy before the first world war has been kicking and raring to transform the world. With the technological innovation of internet and new business models like global business delivery and outsourcing in manufacturing and services, the globalisation seems to have been turning a new leaf with the possible results of being fully connected everywhere. The migration of goods across the borders was made easy and there has been spectacular increase in world trade after agreement on GATS principles. Agreements on trade policies turn the tide towards enforcement of national treatment for multi-national companies and hence flow of investment from west to east and north to south did occur. The nature of investments may be debatable but the specatacular growth of economies of south east asian countries and china does owe a lot to the world trade.

But this recession which is supposed to be as bad as great depression is going to test many governments and economists with the decisions on whether to encourage globalisation or not. Global depression of 1930s is supposed to be one of the prime reasons why globalization in the first phase reduced and finally led to an era of over-protectionism. Looking at this recession and the noises emnating from various quarters in government and society in general, the fears of the re-emergence of bottlenecks for globalization cant be ruled out. There has been demands of protecting indingenous industries both in America and European countries. To quote French president Nicolas Sarkozy "I want us to stop out-sourcing and if possible in-source. If we give money to the auto industry to restructure itself, it's not so we can hear about a new plant moving to the Czech Republic or wherever" . Euro which is " the charming example of a possible united global order" is under pressure in the new recession. In one of the articles at troymedia.com, Dr. Stephen Murgatroyd outlines the challenges faced by Euro in this recession. All the countries by adoption of Euro has lost control on their monetary policies and it is now the European Central Bank that will decide the interest rates who will need to take care of whole of Europe and not of individual countries constituting European Union. When such a challenge like a recession is present before the countries, then the real mettle of unity in a single union is rightly tested.
Demand for protectionism is the foremost reaction for any society whenever there is increase in unemployment which will definitely be one of the consequences of this recession. The bigger countries in the European Union will have to drag along the other poorer countries in Europe which aimed to take advantage of being part of European Union.
China on the other hand has decided on a large fiscal boost so as to encourage domestic demand and hence reduce its dependence on exports for growth.
Is the time coming where after 5 years from now we will see a reverse trend in globalization and see a reduction in world trade levels from now? Well that is an ominous news for the LDC countrires which were hoping to use world trade to get out of poverty...........

Tuesday, April 21, 2009

A brave president

Mr. Barak Obama in a speech at CIA headquarters said :What makes the United States special, and what makes you special, is precisely the fact that we are willing to uphold our values and our ideals even when it's hard, not just when it's easy; even when we are afraid and under threat, not just when it's expedient to do so. That's what makes us different" ..The speeches that we have heard but rarely implemented in our modern times. In this age of nationalistic jingoistic world of ours, I have rarely seen a president/national executive telling his armymen/intelligence that I am going to make your task harder. And here we have an American President saying it to its troops, sorry boy no torture, your job is to bring in good intelligence without torture.. that is surely a brave thing to do..right thing !! well we will know in the future..

In the same speech he said that we have made mistakes in the past and its time to admit the mistakes and go ahead. Accepting mistake by predecessor is easy to do..i would judge him when there are mistakes in his presidency(of course there will be) and then what he does abt it.. the "no torture" policy will also be trial when there is another terrorist attack( i pray not..but terrorists also pray) and we will see how much Obama is faithful to his values and ideals..

Ending torture as method of interrogration, talking to europe and south america as equals, speaking about a nuclear free world, this President has made all the right speeches and pressed the right notes in his first 100 days..On the home front, saving banks and pressing for clean energy has been the right steps in my view while there could be arguments on both sides whether he has been too conservative or lenient in fiscal measures..

This president is faced with the most difficult economic , social and political conditions when he assumed power.. the way foreward is only UP but it needs careful management to make sure that America and we world doesnt fall in abyss..

So after his 100 days , I will give a high five to his presidency and sincerely hope he continues on this path when it will be more difficult.....

the spirit of benjamin button....

Some years before I have heard a quote in my favorite soap "Seinfeld".
Thus spake George Constanza "The lord of losers"

"The most unfair thing about life is the way it ends.
I mean, life is tough. It takes up a lot of your
time. What do you get at the end of it? A death.
What's that, a bonus? I think the life cycle is all backwards.
You should die first, get it out of the way. Then you
live in an old age home. You get kicked out when
you're too young, you get a gold watch, you go to
work. You work forty years until you're young enough
to enjoy your retirement. You drink alcohol, you
party, you get ready for high school. You go to grade
school, you become a kid, you play, you have no
responsibilities, you become a little baby, you go
back into the womb, you spend your last nine months
floating......... then you finish off as an orgasm."

The movie "Benjamin button" seems to be inspired from this.
Though the end is not happy for Mr. Button in the movie as suggested
by George, the idea is something astonishing ..so simple and surprising...

The alternate thinking sometimes does bring surprising statements to the fore
which makes up for the fun in life...