Decoupling Theory – Truth or Myth? A Rogue Engineer turns Economist!

A few days back I was reading the book The World is Flat by Thomas L. Friedman, a bestseller by any regard. The book basically describes how Globalization 3.0 has emerged. This has not only brought countries and individuals close to each other; it proves how this has resulted in increased competition, the end result being a spur in innovation and increased cost advantage for companies and individuals. It also states the new fundamental tenet that globalization is the need of the hour and it’s good for everyone and not against particular individuals. It also states that in the present day global nations are very much interdependent on each other for economic growth and sustenance.

Decoupling Theory: The theory of decoupling suggests that emerging markets have broadened and deepened to the point that they no longer depend on the United States for growth, leaving them insulated from a U.S. recession.

The decoupling theory in no way shuns the globalization theory; all it says is that the major emerging markets primarily the BRIC (Brazil, Russia, India and China) countries have been showing increased economic activities and attracting foreign investments irrespective of the economic trends seen in the US. The theory took much flak off-late after the expose of the housing bubble in the US and subsequent Credit Crunch and Recession. The world markets saw a major downtrend, export driven sectors worldwide were hit by and large (E.g.: IT sector in India)

Demand for Commodities: Generally a recession results in a decreased economic activity, the demand for commodities is expected to fall and in some cases even spur cost-push inflation. The biggest critics of decoupling theory state that recession in the US will result in reduced demand for commodities and thereby hit the emerging economies because majority of their exports are commodity driven. But the supporters of this theory state that the recession is only going to affect the investments in the US and the general public would still be demanding the same level of commodities as before and that there will be no slowdown as such.

On the investment front, due to the declining dollar and interest rates cut by the Federal Bank resulted in diminished returns and hence investments started flowing to emerging economies where the returns were more lucrative (in India in terms of FII). So this resulted in increased economic activities in these economies for a while. However as the recession started finding its root in the export driven sectors in these economies, the companies started feeling the heat and subsequently they showed lower growth margins. Moreover as a result of rapid surge (due to increased foreign investments) these markets reached saturation and were sure to see the downfall. This was seen in the recent market downtrend in India where the stock markets have been falling ever since the start of the year. Now the decoupling theory supports it by stating that these stocks had already reached their peak (Technically say by the P/E) and the people thought that they were overvalued and their selling was imminent and bound to fall, the net sellers being FII. However the critics ridicule it stating that the market went into the bear mode due to increased risks pertaining to US recession and the liquidity crunch resulted in further keeping the investors from making huge commitments monetarily in these emerging economies.

Inflation, the critics of the theory state is an example of the developing nations to hold back the green buck (USD) and purposely devaluing their own currencies to make their exports competitive. This resulted in increased costs of imports for these countries. Now commodities like Crude oil went up. Now since it’s valued in dollars and these countries have devalued their currencies thereby passing on increased cost in their country triggering cost-pull inflation where the general input costs for production have gone up resulting in higher priced commodities, making it difficult for the common man. (For e.g. the RBI was accused of selling rupees and buying dollars to boost the export sector and curb inflation but did it work out? It only resulted in import getting costlier prices being passed on to the common man and thus increased inflation.) The supporters of Decoupling theory state that unlike general observation that due to the recession demand for commodities is going to go down, the opposite has happened and the increased economic activity and demand in emerging economies have pushed the prices up while the demand has reduced in the US supporting the theory further.

The increased per capita income in these emerging economies has resulted in improved standard of living and greater domestic demand for goods. Thus the local demand and supply has attained a greater share of GDP and greatly increasing the economic activity in the country. (for e.g. in India itself the rising standard of living has fuelled a great demand for electronic goods and connectivity leading to a boom in the telecom sector and subsequently in the semiconductor sector) The Economist a leading publication states the figure that the income level has seen a rise of 17% in emerging economies as compared to 1.5% in the developed ones.

Finally coming to Exports, figures state that emerging markets send half of their exports to the emerging markets itself. China’s total exports to US fell by 5% in the aftermath of housing bubble burst but exports to other Brazil, Russia and India was up by more than 60% and those to the oil producers by 45%. Moreover the export to US now contributes only 8% to Chinese, 4% to India, 3% to Brazil and 1% to Russia’s GDP. Thus the emerging economies surely have become more decoupled to the US than before. Moreover the domestic production and consumption has taken forefront.

Conclusion: The present US recession was initiated by the Sub-Prime mortgage crisis and the subsequent Credit crunch. This was followed by worldwide market downfall and at the same time the world witnessed the Food crisis (courtesy droughts, Floods, hoarding, Export bans, Bio-Diesel etc) and the Crude shock (courtesy OPEC’s bullying controlling the oil prices due to depreciating dollar and they trying to maintain their purchasing power, or because of the increased demands from China and India). The various reasons are yet to properly justified. Probably another recession in the US accompanied by a rapid economic activity in the emerging countries and devoid of basic commodity shocks is required to properly justify that the Decoupling theory stands or falls!

SEZ (Special Economic Zone) – An Overview, Challenges and Future

When the India’s ex- commerce Minister Mr. Murasoli Maran returned from a trip to China in late 90’s, he had witnessed something which would lead to revolutionary changes in the India’s EXIM (Export-Import) policy and then the SEZ’s were born.

What is an SEZ? It is a geographical region that has economic laws that are more liberal than a country’s typical economic laws. An SEZ is a trade capacity development tool, with the goal to promote rapid economic growth by using tax and business incentives to attract foreign investment and technology. Today, there are approximately 3,000 SEZs operating in 120 countries, which account for over US$ 600 billion in exports and about 50 million jobs. By offering privileged terms, SEZs attract investment and foreign exchange, spur employment and boost the development of improved technologies and infrastructure.

Moreover SEZ’s provide a medium wherein it not only attracts foreign companies looking for cheaper and efficient location to setup their offshore business, but it also allows the local industries to improve their export through a proper channel and with the help of the new foreign partners to the outside world at a very competitive price. SEZ’s offer relaxed tax and tariff policies which is different from the other economic areas in the country. Duty free import of raw materials for production is one example. Moreover the Free trade zones attract big players who want to setup business without any license hassles and the long process involved in it. Most of the allotment is done through a single window system and which is highly transparent system.  The bottom-line therefore is increased export and FDI (Foreign Direct Investments) enabling increased Public-private partnership and ultimately resulting in a development of world class infrastructure, boost economic growth, exports and employment.

Where SEZ’s have really flourished? The concept of SEZ’s was largely pioneered by China, wherein the SEZ’s contribute to 20 percent of the total FDI. Then the SEZ model was also successfully implemented in Poland and Philippines. In the former the SEZ’s contribute to almost 35 percent of the FDI inflows. Shenzhen in China has been at the helm of rapid economic development, after growing by a staggering 28 percent for the last 25 years.

Why SEZ’s are required? The SEZ’s are important in today’s context for the third world countries which have been in the race for rapid economic growth. There are many positives which emerge out of establishing an SEZ. Let us have a look on these factors.

For undertaking any kind of massive development program the government requires huge amount of funds. So it looks out for potential partners to help the government carry out the program. Now say for setting up an SEZ, the government may tie up with a private partner whose willing to invest in that area, thus a win-win situation for both. As in the government gets the capital needed to establish the required infrastructure and also the expertise. The private player on the other hand gets the right to market and use the SEZ’s with relaxed tax laws, thereby increasing its revenue generating capacity and also carrying out the economic growth of the company in a more efficient way with the better tax policies. Actually SEZ’s with relaxed import tariffs help the Import dependent and export driven industries to flourish by helping them develop manufactured goods at competitive prices.

 

SEZ’s create immense employment opportunities. The setting up of SEZ’s creates lot of indirect employment in terms of labour required. Then after the completion it enables employment in the relevant industries operating in the SEZ. Then there are lots of indirect employments generated wherein people start investing around SEZ. For example SEZ’s are townships of their own; thereby there are shopping malls, restaurants, amusement parks setup around to attract people, thus resulting in more economic development in that area.

 

Moreover SEZ’s improve the country’s foreign export. Because of the increased FDI and Private Equity presence, the local manufacturers get to tie up with these big names and export their products which now carry a better brand value, therefore helping in creating a greater demand for the goods of local manufacturers. Moreover the massive capital required for expansion is brought in form of FDI resulting in increased economic activity.

The increased exports from the country bring in more revenue for the country which improves the economic growth.

 

SEZ’s help in creating a balanced economic growth in a country if they are properly located and implemented leading to tapping of local talent and contributing to increased economic activity in the area.

 

 

Drawbacks:

The biggest challenges faced by SEZ’s in today’s scenario are the taking away of agricultural land from the farmers. The farmers are being paid disproportionate money which is not in lieu of the current land prices. The best example could be seen in the case of farmers from Kalinganagar in Orissa where the money given was disproportionate to as high as 1:10 with respect to the market rates. Moreover SEZ’s are leading to decrease in crop production (arable Land Grabbing!) thus slowing down of agricultural activity in the country. (Though it may help boost it in other ways by increased export of local goods, both processed and non-processed). More and more farmers are moving towards the lucrative manufacturing side in search of greater economic security. Moreover the greatest problem that seems to be emerging out is that arable land is being used for non agricultural purpose which could lead to food crisis and loss of self sustenance in future. For example: Nadigram district of West Bengal. But FDI could also help in providing our farmers to gain access to technological better farming methods.

 

SEZ’s in China were initially exempted from national Labor Laws (despite being a communist country!). This model sustained initially because the foreign investors were given the leverage to train the workers and even fire them if incompetent. This Hire or Fire policy initially helped in sustaining foreign investors’ confidence in the Chinese domestic labor competence, but in the long run such laws must be made more stringent once the confidence is reposed so as to hedge the workers from hostile company’ policies.

 

The SEZ’s if not properly located could lead to Supply Chain Management problems as well. Moreover improper planning could lead to unbalanced growth in the region giving an impression of pseudo-development. For example most of the SEZ’s in China are in proximity to the ports and also close to each other, while these have been at the helm of economic development most of the interior hinterland is vastly underdeveloped. SEZ’s could also lead to income disparities with divide between the rich and poor increasing if not properly planned.

 

SEZ’s mostly if setup for the manufacturing sector should be carefully planned to carry out proper pollution monitoring and control mechanism. Stringent measures may prove to be expensive but are also extremely important. Shenzhen in china has been the worst affected among SEZ’s in China where the sky is grey for most part of the day courtesy the polluting industries. The measures should be taken to make surroundings livable for multitude of people living in the SEZ’s. Moreover care should be taken to properly treat effluents from industries not to affect surrounding rivers. Also the SEZ’s should be carefully planned not to affect the natural habitat around (Gurgaon SEZ affecting the Bharatpur bird sanctuary)

 

India and SEZ:

Overview: The SEZ policy was first introduced in India in April 2000, as a part of the Export-Import (“EXIM”) policy of India. Considering the need to enhance foreign investment and promote exports from the country and realizing the need that level playing field must be made available to the domestic enterprises and manufacturers to be competitive globally, the Government of India in April 2000 announced the introduction of Special Economic Zones policy in the country deemed to be foreign territory for the purposes of trade operations, duties and tariffs. To provide an internationally competitive and hassle free environment for exports, units were allowed be set up in SEZ for manufacture of goods and rendering of services. All the import/export operations of the SEZ units are on self-certification basis. The units in the Zone are required to be a net foreign exchange earner but they would not be subjected to any pre-determined value addition or minimum export performance requirements. Sales in the Domestic Tariff Area by SEZ units are subject to payment of full Custom Duty and as per import policy in force. Further Offshore banking units are being allowed to be set up in the SEZs.

Are SEZ’s New to India? India is one of the first countries in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting exports. Asia’s first EPZ was set up in Kandla in 1965. With a view to create an environment for achieving rapid growth in exports, a Special Economic Zone policy was announced in the Export and Import (EXIM) Policy 2000. Under this policy, one of the main features is that the designated duty free enclave to be treated as foreign territory only for trade operations and duties and tariffs. No license required for import. The manufacturing, trading or service activities are allowed.  While EPZs are industrial estates, SEZs are virtually industrial townships that provide supportive infrastructure such as housing, roads, ports and telecommunication. The scope of activities that can be undertaken in the SEZs is much wider and their linkages with the domestic economy are stronger. Resultantly they have a diversified industrial base. Their role is not transient like the EPZs, as they are intended to be instruments of regional development as well as export promotion. As such, SEZs can have tremendous impact on exports, inflow of foreign investment and employment generation.

 

SEZ Act 2005: To provide a stable economic environment for the promotion of Export-import of goods in a quick, efficient and hassle-free manner, Government of India enacted the SEZ Act, which received the assent of the President of India on June 23, 2005. The SEZ Act and the SEZ Rules, 2006 (“SEZ Rules”) were notified on February 10, 2006. The SEZ Act is expected to give a big thrust to exports and consequently to the foreign direct investment (“FDI”) inflows into India, and is considered to be one of the finest pieces of legislation that may well represent the future of the industrial development strategy in India. The new law is aimed at encouraging public-private partnership to develop world-class infrastructure and attract private investment (domestic and foreign), boosting economic growth, exports and employment.

 

The SEZs Rules, inter-alia, provide for drastic simplification of procedures and for single window clearance on matters relating to central as well as state governments. Investment of the order of Rs.100,000 crores over the next 3 years with an employment potential of over 5 lakh is expected from the new SEZs apart from indirect employment during the construction period of the SEZs. Heavy investments are expected in sectors like IT, Pharma, Bio-technology, Textiles, Petro-chemicals, Auto-components, etc. The SEZ Rules provides the simplification of procedures for development, operation, and maintenance of the Special Economic Zones and for setting up and conducting business in SEZs. This includes simplified compliance procedures and documentation with an emphasis on self-certification; single window clearance for setting up of an SEZ, setting up a unit in SEZs and clearance on matters relating to Central as well as State Governments; no requirement for providing bank guarantees; contract manufacturing for foreign principals with option to obtain sub-contracting permission at the initial approval stage; and Import-Export of all items through personal baggage.

 

With a view to augmenting infrastructure facilities for export production it has been decided to permit the setting up of Special Economic Zones (SEZs) in the public, private, joint sector or by the State Governments. The minimum size of the Special Economic Zone shall not be less than 1000 hectares. Minimum area requirement shall, however, not be applicable to product specific and port/airport based SEZ. This measure is expected to promote self-contained areas supported by world-class infrastructure oriented towards export production. Any private/public/joint sector or State Government or its agencies can set up Special Economic Zone (SEZ).

 

ADMINISTRATIVE SET UP FOR SEZS: SEZs is governed by a three tier administrative set up

a) The Board of Approval is the apex body in the Department,

b) The Unit Approval Committee at the Zonal level dealing with approval of units in the SEZs and other related issues, and

c) Each Zone is headed by a Development Commissioner, who also heads the Unit Approval Committee.

APPROVAL MECHANISM OF SEZS: Any proposal for setting up of SEZ in the Private/Joint/State Sector is routed through the concerned State government who in turn forwards the same to the Department of Commerce with its recommendations for consideration of the Board of Approval. On the other hand, any proposals for setting up of units in the SEZ are approved at the Zonal level by the Approval Committee consisting of Development Commissioner, Customs Authorities and representatives of State Government.

 

How SEZ’s should be modelled to Benefit India:

Size Does Matter: I was reading an article and found out the following fact, China’s SEZs are huge. Shenzhen, the most important SEZ, covers 32,000 hectares. In India, there are just two or three privately developed SEZ, exceeding 1,000 hectares. Most of the others approved are less than 100 hectares.  But it is heartening to realize that the government has decided to up the ante and have made guidelines to have a minimum of 1000 hectares of area for approving an SEZ. It hardly needs reiteration that only a large sized zone can generate economic activity on some reasonable scale. In a small zone, the requisite infrastructure and services cannot be provided nor can multiple economic activities be promoted.

TAX Benefits:  The incentive package in India is quite liberal and may even be a shade better than that for Chinese SEZs. In fact, it is more or less on a par with the package for the existing EPZs. Duty free import of capital goods and raw materials, reimbursements of Central Sales Tax, tax holiday for specified period, 100 per cent repatriation of profits for subcontracting facilities are allowed. The Government has done well by extending incentives for the infrastructure sector to zone developers and the units as well. This can attract foreign direct investment for providing internationally competitive infrastructure.

Labor Laws:  We can learn from china where initially labor laws where relaxed so that the companies could adopt Hire and Fire policy, once the Private and foreign players gained confidence in the Chinese workers’ productivity, this was replaced by the Contract system. India should take cue from this and understand that the import-export business is highly dependent on uncertain international market conditions, rejection of consignments etc. hence a flexible labor policy is the need of hour in the SEZ’s.

Domestic Tariff Areas: We got to understand that the reason for the Foreign investors to invest in Industrial, Manufacturing sector in India is not only to cut down on their costs because of cheaper and competitive products but they also see the vast Indian consumer markets, which has seen great income rise and standard of living. So apart from exports itself, the domestic market itself provides immense opportunity for sale of products. The companies in SEZ being levied a full import duty on sale in domestic areas does not seem a bright idea. In this case SEZ’s will only promote export driven industries which are highly dependent on import of raw materials. To further make use of full potential of SEZ’s Industries which are capable of indigenous generation of raw materials should be provided with tax holidays in terms of benefits to facilitate competitive pricing in the domestic tariff areas.

Thinking about the Future and Possible Fallacies: As evidence over the years has shown, this single-minded pursuit of growth has lowered the efficiency and effectiveness of economic policies, besides incurring huge resource and environmental costs. The Chinese experience offers a valuable lesson for India. Neither the international nor the Indian experience with SEZs has been particularly happy. Globally, only a handful of SEZs, of the hundreds that exist, have generated substantial exports, along with significant domestic spin-offs in demand or technology upgradation. For each successful Shannon (Ireland) or Shenzhen (China), there are 10 failures – in the Philippines, Malaysia, Brazil, Mexico, Colombia, Sri Lanka, Bangladesh, why, even India. A 1998 report by the Comptroller and Auditor General (CAG) on export processing zones (EPZs) says: “Customs duty amounting to Rs. 7,500 crores was forgone for achieving net foreign exchange earnings of Rs.4,700 crores.

The Reserve Bank of India says that large tax incentives can be justified only if SEZ units establish strong “backward and forward linkages with the domestic economy” which is a doubtful proposition. Even the International Monetary Fund’s (IMF) Chief Economist Raghuram Rajan has warned: “Not only will [the SEZs] make the government forgo revenue it can ill afford to lose, they also offer firms an incentive to shift existing production to the new zones at substantial cost to society.”

As much as 75 per cent of the SEZ area can be used for non-core activities, including development of residential or commercial properties, shopping malls and hospitals. Developers will surely use this to make money via the real estate route rather through export promotion. This represents a potentially humongous urban property racket of incalculable dimensions. India will see a multiplication of “Gurgaon-style” development, under the aegis of big builders such as DLF, Marathon, Rahejas, Unitech, City Parks and Dewan.

 

Conclusion: The SEZ’s could drastically improve the economic activity in the country, make the country’s export competitive and globally noticeable, be net foreign exchange earner and provide immense employment opportunity. But this should not be done at the cost of bringing down the agricultural activities, Land grabbing and real estate mafia should be properly regulated so that the common man is not the net sufferer to get the net foreign exchange earner up and running. As compared to china where majority of the SEZ’s were setup by the government, similar should be adopted in India, if not fully it should be a public-private partnership and regulatory bodies should be properly managed to weed out fallacies. To be economically viable SEZ’s should be approved over a particular land area (greater than 1000 acres) for rapid economic growth in the area and for it to be profitable and self sustainable. Relaxed Tax norms, Labor laws and DTA regulations will surely attract foreign investment and major industries to setup industries in the SEZ’s making it profitable and meeting its desired results!

Information Technology (IT) in India- the challenges, Future Scope

The Indian information technology sector has been instrumental in driving the nation’s economy onto the rapid growth curve. According to the Nasscom-Deloitte study, the IT/ITES industry’s contribution to the country’s GDP has increased to a share of 5.2 per cent in 2007, as against 1.2 per cent in 1998.

Further, the IT and BPO industries are poised to clock revenues worth US$ 64 billion by the end of fiscal year 2008, registering a growth of 33 per cent with exports expected to cross US$ 40 billion and the domestic market estimated to clock over US$ 23 billion, according to a study. Simultaneously, the Indian IT services market is estimated to remain the fastest growing in the Asia Pacific region with a CAGR of 18.6 per cent.

India’s IT growth in the world is primarily dominated by IT software and services such as Custom Application Development and Maintenance (CADM), System Integration, IT Consulting, Application Management, Infrastructure Management Services, Software testing, Service-oriented architecture and Web services.

 

Challenges and Positives:

Can we stay Competitive? In the recent past we have seen that the Globalization 3.0 has resulted in Outsourcing and Off-shoring spreading to various other countries like China, Vietnam, Philippines and the Eastern European countries. In the wake of such competition can we still remain competitive? The answer is pretty much yes. We know that our assets are the talented pool of people who are not only competent technically but also linguistically better at English compared to the other competitors. Also the government support, labor pool, infrastructure, educational system, cost, political and economic environment, cultural compatibility, global and legal maturity, and data and intellectual property security and privacy give Indian IT companies and edge. But contradicting this is the Nasscom survey, which states that majority of the graduates coming out of the colleges today are unemployable. We need to introduce training programs in colleges to train the talent pool of students not only technically but also on soft skills. The training should also be imparted to the faculty to generate a better equipped talent force. These measures have already being taken by the IT companies, which also helps in reducing the training costs incurred by the IT companies after recruitment.

Dependency on the US: In the wake of the Sub-Prime crisis and subsequent economic recession in the US, the companies there started cutting down costs and one of them being IT expenditures. Because the majority of the IT companies in India have an export driven business model and majority of it is to the US, the companies have been facing a lot of heat. Some of the clients of these IT companies have gone bankrupt; some others have incurred heavy losses (Citigroup, Bear Sterns, and HSBC etc.) The IT companies should therefore explore options in Europe, the western Asia and Asia-Pacific and reduce direct dependency on the US.

Though it seems paradoxical but recession in the US is only going to make the Industries over there outsource more, primarily to reduce their costs by efficient application of IT, cheaper labor and cost effectiveness.

Indian IT firms outsourced and Off-shored! : It is observed that competitive markets have emerged in Latin America, Eastern Europe and South East Asia. Moreover there are emerging economies present in these areas like Brazil, Russia etc. The IT companies have already forayed in these countries for two primary reasons: First, it provides them to take advantages of cost-effectiveness in these areas due to new talent pool, Lower wages and greater advantage by making their exports cheaper and competitive. Second, places like Mexico have emerged as a major outsourcing and offshore development centre for the IT companies due to the proximity to their major business clientele in the USA. This not only provides cost-effectiveness, but also helping the client in round the clock service providing environment.

Rupee Appreciation and FII: In the wake of US crisis it was observed that the rupee appreciated due to the weakened US economy, Federal bank interest cuts and subsequent FII inflows in the country. Due to this IT companies in India incurred lower profit margins. On the flipside it surely gave them a wake-up call to effectively utilize the resources and bench strength. FII inflows and FDI in the IT sector surely helps in rolling out further expansion plans but excess FII also make the exports incompetent. So the govt. should take steps to manage excess FII inflows into the country and hedge the export driven sectors against the rupee appreciation.

IT SEZ’s: To further make the IT fraternity competitive, the govt. should take steps to develop IT Sez’s. This will reduce the excess tax burden on these IT companies. Moreover STPI (Software Technology Parks of India) have already enabled the IT companies and new startups to carry out the documentation and licensing and tax payment hassles through a single window system. Moreover the govt. should also relax norms for DTA (domestic Tariff Areas) to promote IT spending in the country itself at a lesser cost leading to development of the country.

Diversification In Verticals: In the wake of US crisis, one of the Indian IT company suffered major drop in profits because majority of its clientele in the BFSI (Banking Financial Sector and Insurance). This was the sector which took the brunt of the recession. And the company’ BFSI clients cut down on their IT spending leading to lower profits. Thus the companies should balance their presence in various verticals which will surely make them immune to unforeseen events.

Telecom and 3G: The roll out of 3G of mobile phones in India should be seen as a positive development for the IT companies. In the long run it is going to provide basic communication facilities in the rural areas of the country. Unlike the US where 3G brings luxury, In India it is going to provide basic communication and broadband access to the rural youth. This will result in dissemination of information and creating further talent pool for the country. We have already seen the IT industry moving to Tier-II and Tier-III cities to tap local talent and maintain cost-effectiveness. Moreover Growth in Telecom industry also demands greater IT application in terms of VAS (Value Added Services), Telecom Billing Solutions, IVRS etc.

Domestic Markets: Dalian in China has been growing as the major IT hub there. If actually compared China’s IT spending is five times that of India, most of it being domestically. This could be also seen in the organization of retail sector in China showcasing the presence of Retail majors like Wal-Mart there. Hence IT companies should also focus more on the domestic markets with major projects lining up inside the country as well for instance the Railways ERP project, the BSNL systems integration, networking projects, IT work from ministry of finance and private telecom companies, banks and others are offering multi-year contracts that are over US$ 100 million. Moreover multinationals have been lining up in India further strengthening the IT growth in India.

Capgemini, Europe’s largest consulting and computer services firm is gradually moving its internal support services to India.

After sourcing IT applications from some IT firms last year Wal-Mart will now expand its existing operations given India’s impressive IT capability to cover more firms and augment its work in the United States.

Intel-the globally renowned chip maker is looking to invest more than US$ 1 billion in India over the next three years in partnership with Indian and foreign hardware firms to prepare light weight personal computers.

Cisco posted over 100 per cent year-on-year growth in its SME business in India.

Oracle is expecting over 100 per cent growth in India for its CRM business on the back of increased technology awareness and need for cost-effective customer servicing.

Yahoo! Inc and Tata Sons subsidiary firm Computational Research Laboratories (CRL) have entered into a joint agreement to make available-EKA, a supercomputer (the fourth fastest) in the world for cloud computing research in India.

Dell India witnessed 80 per cent sales over last year with revenues to the tune of US$ 700 million.

World’s leading chip designer firm ARM is expanding its India design centre to make it the largest outside Britain.

IT biggies like Microsoft, IBM, Cisco, Oracle and a host of other IT entities are working overtime to tap the smaller and medium businesses.

Conclusion: Thus we observe that the Indian IT industry has been facing some challenges but if effective steps are taken then it will surely help it to remain competitive in the future as well.

 

FII affecting Exchange Rates, Stock Markets, Inflation and Exports

Foreign Institutional investors: Mutual funds, insurance companies, pension funds, university funds, investment trusts, endowment funds and charitable trusts incorporated outside India but investing in equity and debt securities in the country are known as FIIs. They collect money from individuals and corporate (primarily from countries belonging to the European and American continents), and invest it in financial instruments worldwide, with India being one of the targeted markets. FII who want to invest in the Indian Markets have to register with the SEBI (Security and Exchange Bureau of India) and also from the RBI to maintain a foreign currency account to bring in and take out the funds and also a rupee bank account to make the transactions.

FII’s In Stock Markets: The FII’s profit from investing in emerging financial stock markets, say the Indian stock Exchange. If the cap on FII is high then they can bring in lot of funds in the countries stock markets and thus have great influence on the way the stock markets behaves, going up or down. The FII buying pushes the stocks up and their selling shows the stock market the downward path. So this is how influencing FII can be, as is seen in the present downtrend of the stock markets in India courtesy heavy FII selling.

FII affecting the Exchange Rates: As pointed out in the first paragraph, FII need to maintain an account with the RBI for all the transactions.

 To understand the implications of FII on the exchange rates we have to understand how the value of one currency goes up (appreciates) or goes down against the other currency. The simple way of understanding is through Demand and Supply. If say US imports from India it is creating a demand for Rupee thus the Indian rupee appreciates w.r.t the dollar. If India imports then the dollar appreciates w.r.t the Indian rupee.

Now considering FII’s for every dollar that they bring into the country, there is a demand for rupee created and the RBI has to print and release the money in the country. Since the FII’s are creating a demand for rupee, it appreciates w.r.t the dollar. Thus if for e.g. if prior to the demand the exchange rate was 1 USD = Rs 40, it could become 1 USD = Rs 39 after they invets. Similarly when FII withdraw the capital from the markets, they need to earn back the green buck (USD) so that leads to a demand for dollars the rupee depreciates. 1 USD goes back to Rs. 40. Thus FII inflows make the currency of the country invested in appreciate (e.g. FII investing in India may lead to Rupee appreciating w.r.t several other currencies) and their selling and disinvestment may lead to depreciation.

Depreciating currency not favorable to the FII’s: considering a simple hypothetical example. I invested 1 USD in India at an exchange rate of 1 USD = Rs. 40. If rupee appreciates the exchange rates become 1 USD = Rs. 20. Now if I disinvest I get 2 dollars, whereas I invested only 1 USD thereby a gain of 1 USD. (Though in real terms the purchasing power of my dollar might decrease as my import cost would increase, and cost of living back home may increase, but when I do consider practical examples there is always a gain for FII whenever the currency of the country invested in appreciates w.r.t the home currency)

Similarly when rupee depreciates w.r.t US Dollar and exchange rate becomes 1 USD = Rs. 80 I get only 0.5 Dollar and I lose 0.5 of the 1 USD invested.

Thus we observe that for the FII’s to gain investing in India the rupee should appreciate w.r.t the dollar.

*Recently the rupee has depreciated with respect to the dollar due to FII selling, and due to the selling it has been depreciating even further.

FII and Inflation: The huge amount of FII fund inflow into the country creates a lot of demand for rupee, and the RBI pumps the amount of Rupee in the market as a result of demand created by the FII’s. This situation could lead to excess liquidity (amount of excess cash floating in the market) thereby leading to Inflation, where too much money chases too few goods (perfect example of demand-pull inflation). Thus there should be a limit to the FII inflow in the country.

FII and Local companies: FII bring lot of funds to the country’ markets leading to free availability of funds for the local companies in need of funds to carry on expansion in their production capacities or starting new ventures.

FII and Exports: However because the FII lead to appreciation of the currency, they lead to the exports industry becoming uncompetitive due to the appreciation of the rupee. For e.g. if 1 USD = Rs.40 and a soap costs 1 USD. Now when the rupee appreciates 1 USD = Rs. 20, I will have to sell the same soap to the US for 2 US Dollars in order to sustain the same income that I have been making i.e. Rs.40. Thus excess FII fund inflow in the country can also make a negative impact on the economy of the country.

Thus the FII bring in a lot of funds to the country which could be used by the companies to achieve rapid growth but there should also be a mechanism to keep them in check so that they do not affect the economy of the country negatively. FII are always compared with FDI (Foreign Direct Investment). It is believed that large FII inflows reflect the openness and Reliability of country’ markets. Thus it has to be seen which model perfectly suits a country’ growth

‘SUZLON’ – THE WIND-SIR MANOR

What started off as an initiative to meet his own demand for energy to run his textile plants has now resulted in the world’s fifth largest wind power equipment company with revenues of $ 3.2 billion and market share of 10.5%. So what led to this tectonic shift and resulted in one of the world’s best energy company? Let us have a look.

HISTORY: It was the early nineties and India was just opening up. A Gujarati businessman by name Mr. Tulsi Tanti was running his textile business. He had been facing a frequent problem, the infrequent supply of electricity for his textile plant. It was hitting his business hard, so he decided to setup two wind turbine generators at his site to cater to the energy demands. Many regarded this as a foolhardy step where the capital for setup was more than the textile business itself. But he had his sights on more than the immediate, having already seen the potential of wind power and the global opportunities in the field. Moving quickly, he set forth to acquire the basic technology and expertise to set up Suzlon Energy Limited – India’s first home-grown wind technology company. Suzlon began with a wind farm project in the Gujarat state of India in 1995 with a capacity of just 3 MW and has, at the end of 2007, supplied over 7,500 MW world over. Suzlon has grown more than 100% annually and registered a 108% growth, in the financial year ended 2007 – over twice the industry average – in a supply restricted environment. Today Suzlon is being ranked the 5th leading wind power equipment manufacturer with a global market share of 10.5%. The company seized market leadership in India over 8 years ago, and has consistently maintained over 50% market share, installing over 3,000 MW of wind turbine capacity in the country.

 

CORE COMPETENCY:  So what is Suzlon’ core competency is not tough to guess, the question is how it’s focusing on it? Suzlon over the year (13 years to be precise, setup in 1995) has grown leaps and bounds, to become a complete end-to-end company. The company creates demands for its customers by providing comprehensive business solutions by infrastructure development and converting potential windy sites into profitable business measured in the net output kilo-watt hour.

Complete integration of backward supply chain, through this approach Suzlon has developed comprehensive manufacturing capabilities for all critical components in their wind turbines. This provides the company with quality control, assurance of supply and economic sales.

Research and Development: Suzlon’s R&D strategy lays key emphasis on a lower cost for every kilowatt-hour generated through technological competent products making technology the central objective. For this Suzlon has set foot outside India and has R&D centers in Netherlands and Germany. This brings expertise from the best all over the world.

Markets: Following a truly global approach Suzlon has moved from traditional markets to the new emerging markets. It is basically targeting the Asian and the American markets; it has expanded its business in Australia, Brazil, China, Italy, Portugal, Turkey and United States. To be looking at the figures, Suzlon is the fifth largest in the world right now, with a market share of 10.5%, Vestas the world’s largest player in the segment is 13.6%. Apart from this Suzlon has been creating a great market for itself in China and has already captured an 8% share there.  

 

Wind Farms:

• Suzlon is also developing the biggest wind field in Dhule district of Maharashtra, India. The current capacity is around 650 MW. With an additional capacity of 450 MW, net output wattage will be 1000 MW, making it the biggest in the world.
• In addition to this, Suzlon’s wind farm located in Sanganeri in the state of Tamil Nadu in India, has planned for a capacity of over 500 MW and is home to over 250 wind turbines with a total of 350 MW of installed capacity presently.
• Suzlon has made an entry into the state of Kerala, in southern India, as well.
• Suzlon’s customers in USA currently include Edison Mission Group (EMG) in Irvine, California where EMG holds more than 1000 MW of wind turbine capacity. Another high profile customer John Deere Wind Energy (JDWE) has projects in Minnesota, Texas and recently in Missouri with a turbine portfolio from Suzlon that exceeds 530 MW in capacity.
• Suzlon, under its contract with AGL (Australian Gas Light Company) for 95 megawatts of wind turbine capacity, is setting up a wind farm in rural South Australia. The facility is located in Hallett, 220 kilometers north of Adelaide.
• Suzlon crossed a major milestone in Europe, the world’s largest and most competitive wind market, by completing the commissioning and mechanical erection of turbines installed at its Penamacor projects. The projects cover 39.9 MW of wind turbine capacity with TECNEIRA – Tecnologias Energéticas, SA for two wind farm projects in the Penamacor region of Portugal.

Suzlon’s Clients: Primary customers in India include companies that have manufacturing facilities with high power consumption. These companies have high profitability and seek investment opportunities with stable returns. In India, Suzlon caters to leading corporate houses like the MSPL Limited, Bajaj Auto Limited, Tata Group and Reliance, to name a few. Among others include the ones mentioned in the section under wind farms. 

Manufacturing and R&D Sites: Suzlon emphasizes innovation at the core of all its activities, and nowhere is this more evident than the Research & Development effort. The company has developed a comprehensive range of wind turbine models ranging from 350 kW to 2.1 MW, with customized versions for deployment in a variety of climes ranging from hot, dry deserts to humid coasts, to near-freezing plains. Suzlon has driven a focused effort to make wind turbines more reliable, consistently delivering availability rates beating global standards, higher than 95% on an average. The Suzlon R&D effort is working towards lowering the end-cost of power from wind, in cost-per-kW/h terms – leading towards making wind an increasingly viable, competitive part of the global energy matrix. To drive this development effort, Suzlon has – again – chosen an innovative approach: leveraging the core strengths and experience of different places and people to build a global team dedicated to developing world leading technology. Suzlon has established dedicated centers for gearbox technology in Belgium, technology innovation in Denmark, process engineering in India, aerodynamic development in the Netherlands, and composite wind turbine technology in Germany. These centers of R&D, Innovation and Knowledge Management have been carefully located to leverage local expertise, such as the leadership of certain European countries in different aspects of wind power technology, alongside India’s expertise in IT systems and process engineering and innovative technology application. Suzlon has headquartered its R&D effort in its new Global Technology Center in Hamburg, Germany, enabling a centrally coordinated R&D effort, while allowing for technical collaboration with leading technical universities and institutions in Germany, and further afield.

SUZLON – A HUMAN FACE: Apart from serving the business community by setting up wind turbines for power generation which is cost effective. The company is also contributing to a greener world through initiatives in terms of setting up wind farms to generate energy through non conventional and clean sources. It has also taken initiatives on the human front by taking up multiple steps to promote local business, education and health system in India. Few are:

• Suzlon Energy Limited (SEL), through its subsidiary Suzlon Wind farm Services, undertook a major new Corporate Social Responsibility (CSR) initiative, in the beginning of April ‘07, by launching a partnership with the Kutch Nav Nirman Abhiyan (KNNA). Suzlon has partnered with KNNA to gain support for an operational CSR framework for proactive development. The KNNA is a network of multi sectoral institutions with its expertise areas of community development and sustainable disaster mitigation / management. With its primary focus as Kutch as a model of district development, KNNA also demonstrates good practices of community empowerment and disaster management within the country and outside The first project, organized through ‘Khamir’ – a local NGO, will focus on creating employment in the rural area by leveraging locally available skills. This project named the ‘Dutch Kutch Design Exchange Program’, will be run in partnership with the Einhoven Institute of Design, Netherlands, and Dastkar, Delhi. The focus is on developing local crafts to enable the artisans to create marketable products and access better markets in India and abroad. The program will also assist in developing designs with a strong brand identity, specifically in sectors of weaving, block printing, leather, silver and bell metal. Suzlon will support this initiative with amount of INR 3 lakh, in the first year.
• The second project organized by Bhojay Sarvodaya Trust, will focus on health and sanitation services in the villages of Abdasa and Mandvi. Approximately INR 4 lakhs will be contributed by Suzlon for the effort. Under this project, the Bhojay Sarvodaya Trust will organize eye, dental, general surgery, ENT and gynecology camps free of cost across the project villages. The project will coordinate doctors and surgeons for providing care at the village centers, distribute preventive medicines, and also run awareness campaigns in the region.
• The third activity focuses on our Vision of powering a greener tomorrow at our forthcoming corporate facility at Hadapsar, Pune. There are several ways in which buildings can be made more energy efficient, environmentally friendly, pollution free and socially uplifting. Measures to achieve these objectives are including the usage of solar water heating, using other renewable energy sources, energy efficient lighting, maximum use of natural ventilation, building design to suit convenience of disabled persons, water recycling and moving from a typical office environment to an environment that encourages creativity and team work. These steps have been taken by Suzlon to make this vision a reality.

  SUZLON’s Wind farm in CHINA

CARRIER SELECTION- what is it, what are the operators saying?

The latest buzz in the Indian Telecom industry already complaining against TRAI and DoT for the delay in rollout and licensing of 3G in India and has come under yet another regulatory order from the governing authority. The TRAI wants to introduce carrier selection in the India. So what is the fuss all about? Let us have a look.

Carrier Selection:

This enables a telephone subscriber to decide which operator it wants its call to be routed through when he/she is making an ISD/STD call. So say I am a Vodafone customer staying in Hyderabad and want to make a call to someone in Delhi. Unlike now where I have to stick to my present service provider (this case Vodafone) and it (my present service provider) decides how my call is routed and charges a specific amount for the call. In the carrier selection process I get to choose my own operator. This can be done by prefixing the code of the operator which I want my call routed through and whose network I’ll be using before the number to be dialed. My choice will primarily depend on two factors:

1.  Cost – operator providing cheaper call rates may be preferred

2.  Quality of Service – operator providing better QoS like voice clarity, low echo, and low latency and jitter.

So once the customer decides upon his option he’s free to use the particular operator.

This however should not be mistaken for MNP (Mobile Number Portability) where the customer uses the same number but has shifted to another operator. In Carrier selection I’ll be still under my service provider for normal call and value added services but for long distance calls I can choose the operator for carrying the voice calls. 

What’s TRAI’s Vision?

TRAI, yes the Telecom Regulatory Authority of India which has been bullying the telecom players for quite some time now. TRAI feels that the adoption of American system of carrier selection in India is largely going to help the subscribers. It also sees a general increase in competition thus pushing the prices further down. It will also spur further innovation in terms of better long distance communication and facilities (QoS). Thus TRAI believes the end user will be greatly benefitted.

What the operators have to say?

The operators believe that the present regulations being introduced by the TRAI is unfair for multiple reasons

1.  The present long and short distance call rates in India are already cheaper than most markets in the world. The call rate is generally in the range of 80 paise to Rs. 1.60. Out of this around 65 paise goes for the carriage, 30 paise is the termination charge (fixed by the operator) and rest is what goes to the operator. Therefore service providers think that they are already operating on a thin margin and there is minimal space for further reduction in call rates.

2.  Second, when the scheme of carrier selection was first introduced in early 2000 there were very few operators in the market. The scheme would have been feasible at that time encouraging competition and driving down call rates. Presently there are twelve Mobile Service providers operating in the market. Thus the service operators hold an opinion that they are already enough players to have good amount of competition and keep the prices as low as possible.

3.  Third, the cost required for setting up the Intelligent Networks for Carrier selection is huge. Rather than bringing down the cost, setting up these infrastructure and extra capital flow may lead to increased call rates. Moreover already the Telecom billing system is still maturing; there is no fool-proof system for correct billing. Due to this Mobile Telcos lose out on some revenues. Moreover increased burden in terms of setting up extra IN (intelligent networks) may tax heavily on the service providers.

4.  Finally, one more point to be taken note of is that most of the players which have a considerable customer base are already long distance players (barring Vodafone). And the competition has already driven the prices low.

The Mobile operating space is already very competitive courtesy a significant number of players in the market. Moreover they already are operating on thin cost margins. The Regulatory authority should therefore concentrate on 3G regulations and future innovations.

The 80-20 Principle – Pareto’s Principle

How it came along? 

It was first proposed by the Italian economist Vilfred Pareto in 1906. He created a mathematical formula to describe the unequal distribution of wealth in the country. He observed that 20% of the people owned 80% of the wealth. Much later in the late 1940’s Dr. Joseph M. Juran proposed the “vital few trivial many principle”. This theory basically proposes that 20 percent of things are always responsible for 80% of the results. Moreover the principle came to be known as Pareto’s principle partly because the earlier work of Dr. Juran wasn’t clear and people thought he was applying Pareto’s Economic theory in a broader aspect and partly because Pareto’s principle sounded better than Juran’s principle.

What does it mean?

It means that 80 percent of all the things you achieve are because of 20 percent of all the things you’ve been doing. Further many things can be taken out of it. 20 percent of your work may be consuming 80 percent of your time. Managers spend only 20% of their time to complete 80% of their work, and 80% of a company’s business comes from 20% of its customers. 80 percent of your losses could be because of 20 percent of your business. 20 percent of your stocks may be taking 80 percent of your warehouse. 80 percent of your sales may be due to 20 percent of your products. 80 percent of business growth may be due to 20 percent of your employees. One can apply this principle in any aspect of work or life.

How to use it?

First we have to write down what are the main factors that are directly related to the problem or in general the question that is involved. If more than one factor is due to the same thing then count it as one single generic factor. Let us learn from a simple example. 

Consider the contribution to the monthly household expense by various payments that should be considered. The major payments can be taken as:

House Rent- 10000

Electricity Bill- 500

Car Petrol Bill-1000

Telephone Bill-500

Child’s School Fees-1000

 We then chart it out and observe the contribution made by each. In the example below we observe that out of the total expenditure of Rs.13000 house rent itself amounts to Rs.10000 which is almost 77% of the total expenditure. Moreover it is just one out of the 5 factors making 20 percent of the total factors. Thus we observe that in this case also 20 percent of the factor is contributing to 80 percent of the expense.

Thus we observe that 80-20 principle can in general be applied to any day-to-day problem and with proper analysis one can prioritize his course of action for better returns and efficient functioning.

Increased Interest Rates and Inflation – Good for some, bad for many?

While Idea has been spicing up the Mobile market in India, and while the spice in the Indian Consumers food is missing courtesy increased commodity prices, the Reserve bank of India has hit out further by increasing the repo rates (the rate at which the RBI lends out money to the other banks) and the Cash Reserve ratio (CRR, the minimum amount of cash stocks the banks must maintain). The logic RBI gives is that it is going to tame the liquidity in the market by squeezing the excess cash floating in the market.

But is it what we really require? The RBI seems to have a notion that the current crisis is demand pull inflation where too much money chases too few goods. Rather the case right now is that of Cost-Pull inflation wherein the companies have to increase cost of commodities as a result of increased input costs like hike in oil prices, raw materials, basic metals and increased tax rates and import duties. This is very similar to what we have been observing off-late where the prices of inputs which go into manufacturing of these commodities have grown over the time. While the appreciating rupee saved us from the wrath last year, this fiscal the rupee has depreciated as well.

The policy of the RBI is going to lead to stagflation (high unemployment and economic slowdown).

1.   The current food crisis led to government completely banning export of major food commodities and completely decreasing the tariffs on imports. This would surely hurt the revenues of the govt. and also the overall economic growth to some extent.

2.   Moreover the RBI on increasing the rates has resulted in greater difficulty for the corporate sector to get loans from the govt. in terms of debts, moreover the markets are difficult to get the cash flowing to these corporations due to the increased alienation of the market by the investors due to inflation (as seen by the continued downward trend of the markets). This will only lead to companies shunning economic expansion and further slowing down the economic growth of the country.

3.   The increased interest rates are going to hit the general public by and large. Due to increase in the repo rates by the central bank (RBI), the banks are going to increase the primary lending rates which will be generally ranging from loans for homes, automobiles and even study loans. The consumers taking loans at this time should take a loan on floating rates so that when this inflation is finally tame and the rates are finally decreased they still don’t keep paying the same as they will be now. Moreover consumers already facing the music due to increased rates and EMI’s should try to increase the duration of payment in years to bring down the EMI.

4.   The biggest sector that is going to be hit by this interest rates hike is the Real Estate sector which is so susceptible to the market interest rates. As the customers are going to stay away from taking loans and buying the property the sector will generally slowdown. Moreover the big corporations are just going to wait before rolling out any expansion plans, so cutting down on infrastructure and further slowing down this sector. However because this is going to drive property prices slightly lower in most markets, it is not going to be a particularly bad idea to buy properties right now, probably on floating rates.

5.   Another sector which is particularly going to suffer is Automobile sector. Already the input costs like steel have gone up, the oil prices have gone up keeping consumers away from the roads and now the increased rates will surely slow down the sales, and most of the CEO’s won’t be able to achieve their targets.

6.   However as the lending rates will go up, so will the rates at which banks borrow from individuals and companies. So the particular debt-free cash rich companies are going to gain. Moreover this is generally going to make the market less attractive. Moreover as Markets are meant to give you better returns than the banks especially in terms of maintain the purchasing power of your money over the years. Moreover more and more people are leaving the markets; FII’s as well who are anticipating a general economic slowdown. However this should be seen as the best time to jump-in the stock market.

7.   Moreover the cap on FDI will generally keep away the investors from investing in the country due to a nominal appreciation only, so the cap must be increased. We observed that FDI cap in Real Estate in India has gone up leading to a lot of infrastructral investment and economic activity.

8.   At the same time the depreciation of the rupee has to be controlled in the wake of increased international oil process. This will further help in taming the inflation. Some export oriented sectors will be affected but then the present situation demands a more balanced approach.

As the lending rates increase and the liquidity crunch prevails, will generally tend to economic slowdown. However the RBI and the govt. must try to find out better ways to balance the rising inflation and economic growth of the country.

NOKIA SYMBIAN SYMBIOSIS

The greatest news of the week seems to be that Nokia is going to completely buy out the biggest mobile OS maker Symbian. Nokia which already held a 48 p.c. stake in the company is going to buy out the remaining 52 p.c. So what? Is it a raw deal? What does Nokia want to do with the new deal in picture? Let us have a look.

Symbian: Symbian was a company which until now designed operating systems for mobile devices. The Os was largely proprietary meaning that no one else could use it without the permission of the Symbian consortium. Yes, the Symbian consortium (Symbian Ltd.) was established on June 24 1998 as a partnership project between the big bosses of the mobile space Nokia, Ericsson, Motorola and Psion, to exploit the convergence between the PDA’s and the Mobile Phones. Soon other players joined the consortium like LG electronics, Samsung, Panasonic, and NTT DoCoMo. 

What was the aim of the Symbian consortium? The Symbian consortium aimed at developing a unified closed source OS which the members could use with some modifications pertaining to the user interfaces and development of device drivers for proprietary hardware boards. The organizations joining the consortium after paying a particular license fees which would entitle them under the Eclipse License and they could use the OS.

Market: Symbian OS is the leading OS in the ’smart mobile device’ market. Statistics published February 2007 showed that Symbian OS had a 67% share of the ’smart mobile device’ market, with Microsoft having 13% through Windows CE and Windows Mobile and RIM having 10%. Other competitors include Palm OS, iPhone OS, Qualcomm’s BREW, Google Android and SavaJe.

Current Trends and the OS (open sourcing) of OS’s (operating systems): Over the years Nokia has been the leading mobile phone manufacturer in the world. Infact every 4 out of the 10 phones sold in the world is a Nokia. But the general trend over the years in the Smartphone market has been shifting to a more ready to market device. This has led to the focus on software development for the Smartphone’s. However the developer community was not too happy. Despite the software being licensed out the developers had tough time adapting themselves to different user interfaces wherein Symbian has long served as the underpinnings for several palmtop interfaces, including Nokia’s own S60, Sony Ericsson’s UIQ, and NTT/DoCoMo’s MOAP (Mobile Oriented Applications Platform). These varying user interfaces were a problem. This is where the developer’s started shifting to the open source movements like LiMo (Linux Mobile) and then Google came out with Android. The Symbian Foundation will unify those user interfaces, which will likely make application development easier and more consistent across a wide range of phones. This is exactly what Google wants to do with Android: unify the mobile Linux community behind a consistent interface that’s compatible across a wide variety of phones and available under an open-source license. According to sources at Nokia, code will be released to the public for the first time in either the last quarter of 2008 or the first quarter of 2009. All of Symbian OS and its development tools will be made available by 2010. At this time, Nokia and its Symbian Foundation allies plans on releasing the program under the Eclipse Public License 1.0. In short, Symbian and its major interfaces are well on their way to becoming a completely open source operating system and development platform. This spells potential trouble for Linux embedded systems. Google, faced with delays in its own Linux-based Android platform, made the best of things in its response to Nokia’s news. A representative for Sean Carlson, Google’s manager of global communications, said, “Openness fosters innovation, benefiting consumers. We’re very pleased to see other major players in the mobile industry moving in this direction.”

Winners and Losers: 

1. Apple can be seen sailing through the Smartphone market through innovation. It has already created a niche market for itself through technical prowess. So it is highly unlikely that its proprietary software policy will affect the sales. It can continue to innovate and attract new customers. Thus Apple is going to remain largely unaffected by this deal.

2.  Symbian is been running on 60% of the mobile phones worldwide courtesy Nokia and since majority of Nokia’s phones run Symbian it’s obvious that Nokia does not want to lose out in the race and wants to be the market leader and develop Symbian to match the other upcoming competitors like android and the Limo. Moreover unifying the various platforms and open sourcing is going to make the developer community stick to Symbian Os and help in fostering innovation and better software for Nokia users. The developer community which was being wooed by the Open source Linux Mobile community and the Google’s fully open sourced Android are now going to stick to Symbian. Thus Nokia clearly emerges as the winner out of this deal. It is going to lose out on some revenues though the licensing but it is going to earn through other means like lower development costs and faster innovation.

3.  Google and the Linux community which share the same ideology will be losing out due to increased competition and largely because the LiMo is still very unorganized, compared to symbian which has a dedicated developer pool working towards a concerted goal. It is still Even-Stevens for them.

4.  The odd man out remains to be Microsoft and the Canadian based Research In Motion (RIM). They have for long been closed source and charging high amount of licensing fees. Microsoft’s share of 15% is sure to decline. Because unlike earlier the price to develop and time to market mobile software and Os is going to come down drastically with the opening up of Symbian and presence of other open source players like Google and LiMo. These have already brought down the cost to almost nil. So obviously companies are going to stick with Nokia-Symbian which would provide a cheaper solution and support than MS or RIM. So Microsoft Corporation clearly stands out to lose and will have to come out quickly to maintain its declining market share.

Thus Nokia-Symbian symbiotic existence and opening up is not only going to help the developers world around to innovate further without worrying about the platform and licenses, improve the time to develop and finally help bring down the prices . This will ultimately bring down the price of the mobile phones and the ultimate winner will be the end user.

 

 

An Apple a generation steps up the innovation – latest developments around 3G model and the iPhone sales issue

In 1984, there were personal computers but then Macintosh was launched and it gave us the Graphical User Interface (GUI) and revolutionized the concept of PC’s through iconic innovation! This was Generation 1; I’ll call it Epoch I.

Epoch II: Before 2004 people knew and heard digital music but then iPod came into existence and the rules of the game were changed. iPod provided us with ubiquity and the way we live the music. 

Epoch III: Before 2007 people used smart cell phones, heard music on the move, even surfed the net through these gizmos, but iPhone changed the rules of the game again. It integrated everything into one device, not only made it attractive, user friendly, easy to navigate but more importantly started the beginning of a new era of innovation.

Exactly Apple has been changing the way the game is being played. By introducing innovative products in the market through focused and dedicated approach, Apple has been bringing cool products to the consumer market. And these products are not only smart but also simple for the common man to use. This mix of simplicity and smartness defines the way Apple plays the game, and with each new product marking the start of a new generation and fuelling fresh innovations in the market.

iPhone and its business: with the launch of the iPhone Apple has created a buzz in not only the music and computing industry but it marks the entry of the innovation giant in the field of telecommunications. At the launch iPhone was available in select markets of the world with full available facilities to be used. Moreover the company released the iPhones with only the AT&T network to be used for the next one year. Second, the company did not allow third party to develop software to be running on the trendy iPhone. These factors led to a lot of negative criticism and to some extent affected the sales of the new gadget.

Surprisingly before the launch of the new 3G model, a few months back Apple came out with the SDK (Software Development Kit) for the iPhone enabling many third party companies to develop and market software for the iPhone. This gave iPhone a much needed breakthrough and helped improve sales, which had slowed down after the initial craze subsided which had sent the sales sky high. Till now Apple has managed to sell about 6 million iPhones and has targets of selling 10 million by this year end. So how is Apple going to manage it? Let us check out.

Cool features of the iPhone 3G: the 3G model boasts of a GPS (Global Positioning system) which enables the phone to track its exact location. Apart from the user friendly nature of navigating through the touch screen iPhone, it also supports 3G, i.e. the third generation of mobile systems. 3G brings along with it high speed data transfer ability, thus enabling live streaming video, faster internet access etc. Moreover another striking feature is that in case of theft iPhone completely erases all the data (which could be sensitive) present in the memory.  

Apple’s business model for iPhone 2G: Initially, the iPhones were being licensed through AT&T in a deal which entitled AT&T to share with Apple some of the monthly usage fees of the iPhone users. This helped make Apple profits through not only sales of the phone but also its usage. AT&T benefitted from the increased customer base, and with the number of value added services iPhone supported, it would help AT&T in a greater way.

 Apple’s business model for iPhone 3G: with the release of the 3G model Apple has come out with a new set of business model, it has effectively reduced the price to around 199 USD to boost the sales in mass market by making it affordable. Industry experts feel reducing the price below this would have consequences not good for Apple in a mass market model. However the deal is still not pinching Apple that much! Why? In the new deal the iPhone is going to be released worldwide in around 70 countries with the local mobile service providers promoting it. So how is Apple gaining despite cutting down the cost of the iPhone considerably?  Unlike the 2G the service providers are going to subsidize for the cost of the phone and in return they are not going to share the monthly usage fees with Apple. In this way Apple is going to lose out on some profit it could have made but it wasn’t boosting the sales so much. With the reduced cost of the iPhone and mass marketing by not only Apple but also the MSP’s the iPhone sales are going to improve and Apple is going to profit from the subsidy provided by the MSP’s. Whether it is a win-win situation for both Apple and Msp’s has to be seen. But surely Apple has adopted a strategy the major handset players like Nokia and Samsung have adopted and hopes to boost its sales.  

Apple has always been the harbinger of innovation, while we wait here in India for the release of the 3G iPhone, somewhere in the silicon valley, Apple is already gearing up for Epoch IV.