Thursday, September 27, 2007

Recipe for a good acquisition

Three signs of imminent fall

Only one in four acquisitions succeed in creating shareholder value, says Mr Chris Zook, author of Unstoppable (Harvard Business School Press, May 2007), citing a seven-year study conducted by Bain & Company, a global business and strategy consulting firm.

He gives, as examples, large, "big bang" transforming acquisitions like the one between AOL and Time Warner, and the one by Daimler Benz of Chrysler, which had an exceptionally bad track record, with a success ratio of much less than 10 per cent.

"Certainly, bold deals give a company a sense of power and confidence at the moment of acquisition," adds Mr Zook, in a recent interaction with Business Line over the email. "But the record of eroded balance sheets or tarnished careers is not conducive to either. This is like playing the lottery and calling it your growth strategy."

Wednesday, September 26, 2007

The recent strengthening of the rupee is more to do with an external action of a Fed rate cut

Re appreciation and business decision-making

Chennai, Sept. 25 The rupee tale has two sides – the visible one that shows as the ascent of the rupee on the dollar chart; and the not so visible, the changes that the currency movements have been causing to decision-making in companies. Business Line sought to get a feel of the rupee view from the finance chief’s desk…

“Let’s cut to the chase. There has been a major functional correction over the last nine months resulting in a significant appreciation in the Indian rupee,” begins Mr Balraj S. Hora, Asia Pacific Finance Director of Hewitt Associates, a global player in human resources (HR) consulting, multi process HR outsourcing and benefits administration.

PR in the press is one of the most effective marketing initiatives

Price is a bad competitive weapon

Meet Leonard M. Lodish, the Samuel R. Harrell Professor in the Marketing Department of Wharton School, University of Pennsylvania. Marketing That Works ( http://www.pearsoned.co.in/), a book that he has co-authored with Howard L. Morgan and Shellye Archambeau, takes one through the intricacies of marketing, through entrepreneurial moves, strategies, sales management, product launches and advertising campaign.

Here is Lodish, taking on a few questions that Business Line posed to him over the email.

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Hedging, pricing, and diversification - the strategies adopted by Indian companies

IT’s rupee strategy

With the rupee on an overdrive, Indian BPO (business process outsourcing) companies are rethinking their strategies because, as exporters of services, these companies earn their revenues predominantly in dollars.

“The Indian rupee (INR) is on a rising curve. It has risen to 39.85 against the US dollar in recent times,” observes Mr Pradeep Udhas, Global Partner-in-charge, Sourcing Advisory, KPMG. “It has been estimated that with every 1 per cent appreciation in the INR the effective decline in OPM (operational margin) is almost to the tune of 40-50 basis points.” The rising rupee has become a major cause for concern among Indian ITES (information technology enabled services) and BPO firms, especially the smaller ones, which are not adequately hedged, and are likely to get significantly affected, fears Mr Udhas, in an email interaction with Business Line.

Wednesday, September 19, 2007

Clubs should have far stronger nursery teams

Lessons for cricket from football clubs?

Meet Mr Boria Majumdar, research fellow at Latrobe University in Melbourne, and one of the foremost social historians of sports in India. In an article written a day before the BCCI-ICL tussle became full-blown, he had wondered if there was a way out where the rebel and official cricket authorities can bury the hatchet and let both co-exist peacefully. He had drawn as precedent the way the Australian Cricket Board and Kerry Packer patched up a standoff that shook the cricketing world in the late 1970s.

Monday, September 17, 2007

Three key conditions for the success of a legal offshoring company

For Hollywood, from Mysore

The majority of legal services in the West can and should be sent offshore, says Russell Smith, President and Chairman, SDD Global Solutions Pvt Ltd, a Mysore-based legal services KPO (knowledge process offshoring) player. “And we are talking about services that now fetch a price tag of $250 billion per year and growing,” he adds, in a recent e-mail interaction with eWorld.

“The vast majority of the offshored work will go to India, because of 80,000 English-speaking law graduates entering the market each year, the ‘common law’ system India shares with the US and the UK, and India’s reputation as the leader in outsourcing.”

Friday, September 14, 2007

One needs to be careful on the credit exposure

‘India is hot, be it debt or equity’

Chennai, Sept. 13 What’s currently hot on the radars of institutional clients? “Due to sub prime, a lot of clients are looking at FMCG (fast moving consumer goods) but I think overall India is hot, be it debt or equity,” says Mr Jayesh Mehta, Head - Institutional Client Coverage Group (ICCG) in India at DSP Merrill Lynch. “Globally principal investment will be more conservative,” he foresees, in an email interaction with Business Line.

Mr Mehta, who has been instrumental in building the firm’s debt trading (rates) and sales/ structured solutions group in the country, was earlier heading the debt markets area in DSP ML. His new role involves developing and nurturing top-level management relationships at the institutional level

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Cost accounting outsourcing

Branding management accountants as bean growers, not counters

Repositioning the management accountant, and showcasing him as a strategist and performance management specialist are among the themes that the Institute of Cost and Works Accountants of India (ICWAI) is planning to pursue at the ‘global summit’ early next year.

The event, to be jointly hosted by the costing bodies from the neighbouring countries, has technical partnership from the institutes in the UK, Canada and the US.
“In the run-up to the summit, the Institute is lining up research outputs in the form of co-branded publications with CMA Canada on areas of management accounting relating to strategy and management, such as how management accounting can enhance risk management framework,” says Mr A.N. Raman, a Chennai-based Central Council member of the ICWAI and Chair-Global Summit on Management Accounting.

Thursday, September 13, 2007

The valuation rule will need to be exhaustive and specific

Stock options: The costly ambiguity
Chennai, Sept. 12 In the ambiguity surrounding fringe benefit tax (FBT) on employee stock option plans (ESOPs), the biggest affected party is possibly the Government, according to Mr Kaushik Mukerjee, Executive Director of PricewaterhouseCoopers.

“The first instalment of FBT was due on June 15, which was postponed by the Government to September 15. If the notification had been issued in time, 45 per cent of the tax would have been collected by September 15. In the absence of rules, the Government cannot collect FBT,” he said in an email interaction with Business Line.

Wednesday, September 12, 2007

India’s industrial growth is committed to balanced regional spread

‘Handling of land acquisition is the litmus test of India’s SEZ policy’

Can Nandigram-type episodes upset the ongoing or future SEZ projects? “SEZs (Special Economic Zones) are a constantly unfolding saga,” says Mr Yogesh Ashar, who has recently co-authored with Mr Kanu Doshi Treatise on Special Economic Zones ( http://www.swpindia.com/).
“While farmers at Nandigram and at many other places have opposed SEZs, a news report says that at about 40 km from Pune, in Avasari Khurd village, it is a different story,” he narrates.

“Around 1,500 farmers from the village passed an unanimous resolution on July 5, seeking SEZ status for their village which is located 20 km from the proposed international airport at Rajgurunagar. The agriculturists from the village have decided to form a company: Avasari Khurd Industrial Development Pvt. Ltd, using 3,550 acres of land out of 6,250 acres of their total land.”

Mr Ashar and Mr Doshi, both chartered accountants, are associated with Welingkar Institute of Management, Mumbai, as faculty. Business Line interacted with the authors for their views on some of the current issues relating to SEZ. Here are excerpts from an email interview.

Monday, September 10, 2007

India has long been a responsible custodian of nuclear weapons and technology

‘Indo-US nuclear deal not perfect, but a net plus’
The Indo-US nuclear deal has been the most controversial issue in recent weeks, even leading to speculation of a mid-term election in the event of a likely withdrawal of support to the ruling UPA coalition Government.

Those opposing the deal, chiefly the Leftist parties, point to the possibility of Indian interests becoming subservient to those of the US should the agreement be finalised in its present form. But Dr S. Paul Kapur, a visiting professor at the Center for International Security and Co-operation (CISAC), Stanford University, thinks that the Indo-US nuclear deal, “while not perfect, is a net plus.”

Tailor-made software

IT elephant

How is the IT (information technology) services industry shaping up and evolving? This is a function of the way many drivers of the industry will play out but a very important one is the role of the customer who pays for the services, say Was Rahman and Priya Kurien, authors of Blind Men and the Elephant ( http://www.sagepublicaitons.com/).

“The question is whether the customers will continue to not care how IT delivers to them or will they begin to apply stricter norms of what can be classified as success and value delivered by IT,” they add. “Other factors include the role of innovative technologies, demographics of end consumers and what they want from large businesses, the demographics of employees.”

Sstrong brands help in differentiating products in the market



These are days when mergers and acquisitions (M&A) are globally becoming important paths to stronger corporate growth. Indian corporates too are involved in big-ticket deals, as evident from the fact that the Indian economy broke into the league of top 10 markets globally for M&As, in the first quarter of 2007.

In these transactions, rarely does a company pay book value to acquire another business entity. The difference between book value and the actual acquisition price paid is because of intangible assets of which brand is an important one.

Sunday, September 9, 2007

Credit of taxes not covered by a tax treaty

Top five tax issues in India from a global perspective Interview
What are the top tax issues in India, from an international perspective? “Transfer pricing, controlled foreign corporations (CFC), thin capitalisation, foreign tax credits, and limited liability partnerships (LLPs),” says Mr Wilbert Kannekens of KPMG in the Netherlands.

Mr Kannekens, who holds a civil law and business law degree from the University of Rotterdam, European Fiscal Studies, and a tax and law degree from the University of Leiden, has over two decades of experience as a tax lawyer. A partner in KPMG since 1996, his area of focus is Dutch and international taxation of multinational companies, with emphasis on corporate tax.

Thursday, September 6, 2007

Only truly great communicators are likely to succeed in blogging

‘Outsourcing blogging may become standard practice’

Everybody’s blogging these days. Or so they say. Do they? More importantly, should they, especially if they are businesses? These questions and a myriad others are answered by Jeremy Wright in Blog Marketing, a book that tells you everything you needed to know about blogging but didn’t know which consultant to ask. Business Line caught up with Jeremy Wright on how important it is for businesses to embrace the phenomenon of blogging, which has transformed the corporate communications landscape. Excerpts:

Wednesday, September 5, 2007

No need for aggressive bullying tactics



The keenly-watched Novartis litigation in Indian courts offers us lessons for patent strategy, says Mr Shamnad Basheer, an expert in IP (intellectual property) law. The patent saga of the global major teaches us that pharmaceutical companies and patent lawyers representing them cannot remain obsessed with technical nuan ces of patent law, he adds.

“Rather, a successful patent strategy will be one that works within the framework of an increasingly politicised patent regime to yield results that help generate more goodwill for the pharmaceutical company,” explains Mr Bashee r, in an email interaction with Business Line. He is Frank H. Marks Visiting Associate Professor in Law in George Washington University Law School, Washington DC, US.

Monday, September 3, 2007

Credit ratings play a crucial role in the development of the capital markets

‘Investors do not have any financial claim over the rating agency’
In the ongoing subprime drama, rating agencies are key players, coming under heavy fire. Serious doubts are being raised, both in the US and elsewhere, whether the rating agencies could have alerted investors and thus averted the massive losses, rather than give good ratings to the subprime mortgage loans. Significantly, Ms Kathleen Corbet, president of Standard & Poor’s, a leading global credit rating company, resigned a few days ago, making way for Mr Deven Sharma.

Just the right time for a zero-base on rating, which is why Business Line interacted with Mr N. Muthuraman , Director, Criteria and Product Development, CRISIL, for answers to a few basic questions about rating.
An engineer and a management graduate from IIM, Bangalore, Mr N. Muthuraman has, over his decade-long stint with CRISIL, handled credit rating assignments across various sectors including automobiles, auto ancillaries, general engineering, chemicals, petrochemicals, shipping, media and FMCG industries.

Focus on the work at hand rather than the gender

Brave through the bad times

Approximately one-third of employees in Indian software companies today are women. An increasing number of women enter professional engineering streams such as computer sciences and electronics. With the demand for technical professionals remaining strong in IT (information technology) industry, women will remain valued employees. “But the glass ceiling does exist at the senior management levels,” says Nita Goyal, co-founder and VP of Tavant Technologies.
She should know, as ‘the first woman to have obtained a computer science (CS) degree from any of the Indian Institutes of Technology’, a PhD from Stanford University in the field of artificial intelligence (AI), and a successful entrepreneur.
Goyal is, however, hopeful of better times for women. “I see a change with Indian companies that are beginning to create a better eco-system that supports women at work in terms of availability of quality childcare, creating women forums that allow for mentoring, flexi-time, rehiring, work from home etc,” she says, responding over email to questions from eWorld.

Employees are motivated to participate in future initiatives

‘Being socially responsible transcends mere donations’

FedEx, the logistics company that is most famous in India for its courier services, has been active on the corporate social responsibility (CSR) front too. Speaking to The New Manager on the various initiatives in this do main, Jacques Creeten, Vice-President, India, FedEx, said that in addition to corporate philanthropy and employee volunteerism, the company has developed strategic relationships with charitable organisations with the same ethics and values. Excerpts from the interview:

Do you have measures to evaluate the efficacy of CSR activities?
CSR is about making a difference in chosen issues. We believe that the success of our initiatives lies in bringing about changes in people’s lives in the community we live and work in. If the initiative does that, it is meaningful.

Sunday, September 2, 2007

The valuation techniques can be standardised through scientific education and training

‘India needs a council of corporate valuation professionals’

The present system of corporate valuation lacks a disciplined, systematic and scientific approach, which is much needed for consistency, says Mr Chandra Wadhwa, President of the Institute of Cost and Works Accountants of India. “The absence of valuation discipline is damaging corporate governance and its health.”
Mr Wadhwa, a New Delhi-based cost accountant, is also Chairman of Working Group to suggest institutional framework for corporate valuation constituted by the Ministry of Corporate Affairs. Recently, he shared with Business Line his personal views on the subject of valuation.
Excerpts from the e-mail interview.

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Rivalship and emulation render excellency

‘Competition will unlock hidden value’

In their purest and simplest form, the issues and controversies surrounding the Indian Cricket League (ICL) are typical of those engendered by the prospective end of any monopoly, says Nandan Kamath, Director, GoSports ( http://www.gosports.in/), a Bangalore-based career management and advisory firm for sportspersons.
Kamath, a graduate of the National Law School (Bangalore), the University of Oxford (on a Rhodes Scholarship), and Harvard Law School, has represented India and captained Karnataka in cricket at the junior level.
In a recent e-mail interaction with BrandLine, he demystifies many a question about the current situation involving the BCCI (Board of Control for Cricket in India) and ICL.

Familiar brand names disappear following an acquisition

Significant changes happening in the way M&A deals are done

The Coke acquisition of Glaceau and the much-publicised Suzlon-Areva battle for acquiring REpower have ensured that the issue of mergers and acquisitions (M&A) remains in the spotlight. Alongside these mega deals, pitchforked into centrestage are issues such as corporate culture conflict, destruction of brand value and industry consolidation.
Speaking to Business Line on these issues and other aspects of the spiralling trend of such mega deals, Mr Gopal Ramanathan, Global Chairman of KPMG's Transaction Services Practice, said that culture issues come into the picture in most trans-national transactions.
"It is certainly one that needs a lot of attention, otherwise the company ends up with a host of problems. Sensitivities to cultural differences tend to get a lot more priority these days because there is increased awareness of the pitfalls of ignoring them."

There is a need to enhance investment in the infrastructure sector

Continue weighted deduction for research & development

What is going to be the direction of the forthcoming Budget? "Moderate taxes, better tax administration, fewer tax exemptions and widened tax base," foresees Mr Ashesh Safi, Director, Deloitte Haskins & Sells, Mumbai. "There are certain tax exemptions which are expiring on March 31, 2007. It needs to be seen whether such exemptions are extended for a further period," he says, in an interaction with Business Line.
Here's more from Mr Safi, on what to expect from the Budget 2007.

Credit Policy

How to judge the effectiveness of the credit policy?

The decision to increase the repo rate by 25 basis points is clearly aimed at controlling inflation, targeted to remain within 5-5.5 per cent in the short run, while maintaining the trend towards a higher growth path.
Thus begins Dr Shanto Ghosh, Director and Principal Economist, Deloitte, Haskins and Sells, Mumbai, while discussing with Business Line the latest monetary policy review by the Reserve Bank of India.

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Payments by the Indian counterparts were taxable in India

Hospitality treaty

A Luxembourg-based company recently approached the Authority for Advance Rulings (AAR), seeking clarity on the taxability of payments received by it from Indian hotels towards marketing and promotion. To know more about the case, which may be of interest to those in the hospitality industry, Business Line interacted with Mr Rajesh Patil, Manager, Deloitte Haskins & Sells, Mumbai. Here are his answers to a few questions.
First, the facts.
The Luxembourg company in question is IHLC, or International Hotel Licensing Company SARL. For starters, SARL stands for `Societe a Responsabilite Limitee' or limited liability company as per Luxembourg corporate law.