Saturday, October 27, 2012


Dear Readers:


I am taking a break, in these exciting times!! Believe me, it is hard to take a break, since, every day is an eventful day! I hope to return, duly rejuvenated. Until then, do enjoy the wide repertoire of articles, in this blog!!

Contributions to this blog will re-start from the 15th of November 2012.

All the best!!


Thursday, October 25, 2012

Walmart spurs Transport Corp's spending on logistics

Transport Corp of India, the nation’s third-largest logistics company, plans its biggest investment in five years to prepare for a jump in freight demand as retailers such as Walmart Stores Inc open outlets.
The company will spend Rs 150 crore ($28 million) in the year to March 31 to add more trucks and build warehouses, Joint Managing Director Vineet Agarwal said in an interview. The spending may help Transport Corp’s supply chain division, which offers warehousing and packaging, to expand more than 20 per cent annually through 2017, he said.
The operator plans to add 1,000 more trucks in five years, Agarwal said, as India’s decision to allow foreign investment in retail stores will help create more supermarkets and boost transportation of farm and factory products. Deutsche Post AG’s DHL Supply Chain last week said it would invest euro 100 million ($131 million) to strengthen operations in the country.

“Once overseas investments start coming into retail sector, it’ll help Transport Corp,” said Rajni Ghildiyal, an analyst with Asit C Mehta Investment Interrmediates Ltd. “The strategy to place itself as a supply chain solutions provider will help it exploit the potential.”
Transport Corp rose 0.9 per cent to Rs 64.9 in Mumbai today. The stock declined 13 per cent in the past year, making it the worst performer on the 29-company Bloomberg Industries Express & Courier Services index after Hanjin Transportation Co.
Sales at Transport Corp’s supply chain division rose 21 per cent to Rs 580 crore in the year ended March 31, data compiled by Bloomberg show. The business contributed about 30 per cent of total sales, up from 14 per cent four years ago.
‘Cold reefers’
“There’ll be investments in farmgate infrastructure once foreign supermarkets set up shop,” Agarwal said in New Delhi. “At that point, a certain amount of logistics, including cold reefers and dry goods movement, will be required. We’re prepared to handle that.”
Last month, Prime Minister Manmohan Singh’s government allowed overseas retailers such as Walmart and Carrefour SA to own as much as 51 per cent in supermarket ventures. Singh also cut energy subsidies, allowed foreign airlines to own as much as 49 per cent in local carriers and permitted overseas investment of up to 49 per cent in power exchanges, ending two years of policy gridlock.
Singh’s policy drive prompted ally Trinamool Congress to quit the alliance. Last year, Singh put the plan to ease investment rules for overseas retailers on hold after opposition parties as well as Trinamool Congress chief Mamata Banerjee protested.
Walmart might take 12-18 months to open retail stores in India, Scott Price, its head of Asia operations, said on September 21. The world’s biggest retailer has been building a supply chain and logistics network in the country after forming a venture with billionaire Sunil Mittal’s Bharti Enterprises to operate wholesale outlets.
Computer systems
Entry of foreign supermarket chains will spur investments in warehousing, inventory management and computer systems, according to Zenith International Research & Academic Foundation in India. This will help reduce cost for retailers and boost consumer spending, according to Zenith.
The size of the logistics industry in the country is $90 billion to $125 billion, according to a study by Deloitte in India and the Indian Chamber of Commerce. Investments in logistics infrastructure may drive economic growth this decade, according to the study. Logistics accounts for 13 per cent of the nation’s gross domestic product.
DHL Supply Chain said on October 16 it would add five million square feet of warehousing space in eight cities including Mumbai, Bangalore and Chennai. The company also plans to upgrade its fleet of vehicles, it said in a statement.
Congested highways
Transport Corp’s profit may rise as much as 15 per cent this financial year, Agarwal said. That’ll be the slowest pace of growth in four years, according to Bloomberg data.
The company’s operating margin increased to 6.1 per cent in the year ended March 31 from 5.8 per cent a year earlier, according to data compiled by Bloomberg. Sales in the period expanded at 5.5 per cent, slower than the 22 per cent expansion in the year earlier period, the data show.
Transporters have to contend with congested highways in India, where infrastructure is ranked worse than Guatemala’s by the World Economic Forum. Traffic snarls cost Asia’s third-biggest economy $5.5 billion annually, according to the Indian Institute of Management in Kolkata and Transport Corp. Trucks take 65 hours to travel the 1,374 kilometres (854 miles) between Mumbai and New Delhi because of traffic and stoppages at toll plazas and state borders.
‘Not enough’
Road construction is lagging behind an August 2009 target of 20 kilometres a day as slowing economic growth and high interest rates discourage builders from bidding for projects.
Prime Minister Singh’s government has targeted a spending of $1 trillion on roads, ports and railways in the five years through 2017. Authorities are also planning to award $2.3 billion of state-funded highway contracts this year.
“Whatever we’re doing is not enough,” Agarwal said. “Work on everything from roads, ports to railways is going very slowly.”

Buffett looks for big-ticket acquisition

Warren Buffett has said he is “salivating” at the thought of spending some of his $40bn cash on a big acquisition as he revealed that two $20bn deals fell through this year after disagreement over price.
The billionaire investor told CNBC that he was unwilling to compete with other bidders in his pursuit of companies to add to Berkshire Hathaway, the confectionery-to-cargo train conglomerate he controls.
Mr Buffett very rarely sells a company that has been absorbed by Berkshire, which has a $217bn market capitalisation, and prefers to negotiate directly rather than participate in an auction that might drive up a company’s price.
The veteran investor is famed for his ability to put to work cash held by Berkshire’s extensive insurance operations and the income from its more than 70 operating businesses.
Four of the five largest of those operating businesses – which produced $9bn of Berkshire’s $15bn in 2011 pre-tax earnings – were purchased in the past seven years.
The last big deal signed by the “Sage of Omaha” was the takeover of chemicals group Lubrizol for $9.7bn agreed in early 2011, a transaction that also saw senior lieutenant David Sokol depart under a cloud due to transactions in Lubrizol stock.
There are 75 companies in the S&P 500 with market values of $15bn to $20bn, including groups such as food manufacturer Heinz, Johnson Controls and energy supplier Con Edison.
The prospect of changes to US tax laws in the new year, which may see the rate of long-term capital gains rise from 15 per cent, could also prompt owners of large privately held businesses to consider a sale.
Mr Buffett has frequently said he will consider simple businesses with management in place that demonstrate “consistent earning power” and good returns while using “little or no debt”.
In May, Mr Buffett told shareholders gathered in an Omaha stadium for Berkshire’s annual meeting that if he failed to find a $20bn deal this year, he would consider a $30bn acquisition next year. Since that meeting, when Mr Buffett was peppered with questions about Berkshire’s lowly valuation, the company’s stock is up 16 per cent, to $131,200 per share.
Mr Buffett said on Wednesday that he has bought about 15 small businesses this year to “bolt on” to the conglomerate, including 63 Media General newspapers for $142m as Mr Buffett expands his interests in local news publishing.
The investor also said that he had added to his stock holdings of mortgage lender Wells Fargo, but had sold some shares in Procter & Gamble due to its valuation.
Mr Buffett also said that he remains bullish on the US economy, which he expects to continue “inching ahead” even as global growth slows, as the housing market recovers. Berkshire’s businesses have begun to see a pick-up in demand and he said that he expects them to hire about 8,000 people in response this year.

European carmakers apply the brakes

Europe’s deepening car industry crisis rippled around Europe on Wednesday as PSA Peugeot Citroën unveiled a major expansion of its cost-cutting alliance with General Motors in the wake of its government bailout and Ford closed its Belgian car plant.
Ford also convened a meeting with UK unions on Thursday, raising fears that it will close its Southamption plant, which employs about 500 workers making chassis cab variants of its Transit van.
The moves by three of the biggest carmakers brought heated reaction from politicians and unions. There was unease that long-held taboos around protection of jobs and national champions could be broken as the industry is forced to respond to sliding sales and the savage discounting of cars.
Ford Motor said that it would close its plant in Genk, eastern Belgium, where it employs 4,300 people, following similar moves this year by GM and Peugeot to close European factories.
Production of the plant’s Mondeo, S-Max and Galaxy models would move to a factory in Valencia, Spain, Ford said. The announcement caused an angry reaction from Belgium’s government, with Steven Vanackere, finance minister, declaring that Ford’s decision was “not final”. He said: “We have a moral duty to consider whether this wave of lay-offs can still be avoided.”
Ford would not comment on its UK plans ahead of a briefing on Thursday led by Alan Mulally, chief executive, who will add details to an overall “transformation plan for Europe”. The Southampton factory has already been working on a single shift because of slow demand.
In Paris, Peugeot and GM, two of Europe’s carmakers most challenged by the slowdown, announced plans to collaborate on four vehicle platforms, ranging from small cars to vans, in a move that will save them $1bn each in synergies by 2016.
Unions at Opel, GM’s German-headquartered European brand, demanded a meeting with management. The unions are worried that melding of car platforms will cause a “race to the bottom” on earnings and working conditions as their European plants bid against one another. Peugeot will likely face pointed questioning from its own workers at a meeting scheduled for Thursday.
Separately, Peugeot finalised a €7bn government-led bailout for its Banque PSA Finance credit arm, marking the French government’s biggest intervention in the industry since 2009.
Peugeot, which has faced coruscating criticism from France’s Socialist government for its plans to close its Aulnay plant and cut more than 6,000 jobs, promised it would not pay out dividends, buy back shares or award stock options as a condition of the rescue.
Its shares fell by another 5 per cent to €5.55, close to all-time lows, because of investor fears about state meddling in the carmaker.
Pierre Moscovici, finance minister, and Arnaud Montebourg, industry minister, stoked those fears by saying that a committee involving state and Peugeot representatives would be formed. This will cover “all operations affecting the control or the perimeter of the group and its principal subsidiaries, as well as any significant evolution of their activities”, they said.
Unlike the crisis in the US car industry three years ago, which saw the US government bail out GM and Chrysler and shepherd them through bankruptcy, European leaders have not joined forces across borders to address the industry’s overcapacity.
One Belgian union leader called on the European Union, which says it is “neutral” about the car industry’s overcapacity problems, to take action to support the sector.
“Why can’t we expect a European plan to rescue the four sites of Ford in Europe like President Barack Obama did for GM and Chrysler or what the French president François Hollande did for Peugeot-Citroën?” said Jan Vercamst, national president of the ACLVB trade union.

Chipotle Seen Becoming McDonald’s With Drive Throughs

With growth stalling, Chipotle Mexican Grill Inc. (CMG) is mulling changes that threaten to turn the burrito chain into what founder Steve Ells said it would never be: another fast-food joint.
Ells, a classically trained chef, built a cult brand by wowing diners with a tightly edited menu of sustainably sourced food and helped pioneer the “fast casual” category.
Hewing to that vision is getting harder. Last week, the Denver-based company reported profit that trailed analysts’ estimates amid slowing same-store sales growth. After the results, Ells suggested strategic changes one might expect from his counterparts at McDonald’s Corp. (MCD) or Burger King Worldwide Inc. (BKW) They include running more commercials that drive traffic rather than celebrate the brand, and possibly adding breakfast items and installing drive-through windows.
The proposed changes recall what happened when Starbucks Corp. (SBUX) began brewing bagged coffee instead of grinding beans in front of customers in stores, losing the fresh coffee aroma, said Kevin Lane Keller, a marketing professor at the Tuck School of Business at Dartmouth College in Hanover, New Hampshire. Starbucks later returned to grinding.
“You have to be careful of the death by a thousand cuts, where you’re making a series of decisions that might have little compromises” and aren’t consistent with the brand, said Keller, who has written about Chipotle in a textbook.
While Chipotle’s new Mexican-themed food might work, Keller said a drive-through gets away from the chain’s signature production-line service, in which counter staff build burritos to customers’ specifications.
“You lose the experience,” he said.

Struggling Chains

In the wake of the U.S. recession, chains such as McDonald’s and Chipotle continued to boost sales. Now, restaurants including Chipotle are starting to struggle and some are stepping up advertising and adding new menu items. After last week reporting the slowest U.S. same-store sales increase in 11 quarters, McDonald’s said it would increase its Dollar Menu marketing to draw cash-crunched consumers.
While the Standard & Poor’s 500 Restaurant Index (S5REST) gained by at least 14 percent annually in the past three years, the index has slumped 6.2 percent this year as higher gas prices squeeze Americans’ paychecks and stall consumer spending.
Ells, who serves as co-chief executive officer, opened the first Chipotle store in 1993. McDonald’s, the world’s biggest restaurant chain by sales, began investing in Chipotle in 1998 and was the largest shareholder from 2000 until it spun off the chain in 2006. Chipotle, which sold shares in an initial public offering for $22 each in 2006, has since grown to more than 1,350 locations.

Not Pivoting

“We’ve always been very sort of focused on doing our marketing kind of different,” Alex Spong, Chipotle’s director of investor relations, said in an interview. “That model has allowed us to have consistent sales growth.
‘‘While we may tweak some things here or there, I think it’s important that the takeaway is, we’re not pivoting from our strategy,” Spong said.
Chipotle sales growth started to slow during the second quarter. Sales at stores open at least 13 months rose 8 percent in the second quarter and 4.8 percent in the third quarter as consumers pulled back spending.
On Oct. 2, hedge fund manager David Einhorn criticized the company, saying its valuation was too high and that it will face challenges from Yum! Brands Inc.’s (YUM) Taco Bell.

Beef Controversy

Taco Bell has moved past a controversy concerning the quality of its ground beef, and its recent higher-priced Cantina Bell menu has helped fuel sales. Still, the chain isn’t stealing many Chipotle diners, said Peter Saleh, a New York-based analyst at Telsey Advisory Group. Though there is some customer overlap, it’s not significant, he said.
“Chipotle’s core customer is more young professional, late 20s, early 30s, the person who is looking to eat a little bit healthier,” Saleh said. “The Taco Bell customer is definitely a younger, high-school or young, college student” who wants to spend a little less, he said.
Chipotle also has fast-casual rivals that may be poaching some customers. So-called better-burger chains have been expanding in the U.S. -- sales at Smashburger jumped 72 percent last year, while Five Guys Burgers and Fries revenue rose 33 percent, according to data from Chicago-based researcher Technomic Inc.

Einhorn Criticism

Since Einhorn criticized the burrito maker, its shares have dropped 23 percent and on Oct. 22 traded at the lowest premium to the Standard & Poor’s 500 Index in more than two years. Chipotle has become less valuable to investors and trades at about twice the price-to-earnings ratio of the S&P 500 Index, compared with 4.3 times in April. Still, the company’s stock is up more than 11-fold since its IPO.
With sales growth slowing, the burrito chain seems prepared to try more conventional fast-food advertising.
“Chipotle hasn’t been a traditional advertiser,” David Tarantino, a Milwaukee-based analyst at Robert W. Baird & Co., said in an interview. “They’ve chosen to allow their brand to grow with more word-of-mouth communication.”
The company has used emotional advertising to connect with Americans and push an environmentally conscious image -- it’s “Back to the Start” animated video shows a hog farmer returning to his small, family-run business roots after experimenting with large, industrial production. In the ad, which aired during the Grammy Awards, Willie Nelson sings “The Scientist.” Chipotle has also given out free burritos on Earth Day to customers carrying recycled lunch bags.

Offbeat Ads

Burger King has recently gone the way of traffic-driving ads. Instead of offbeat ads featuring the so-called King character, the company began using close-up product shots and touting special deals, such $1 chicken wraps and 50-cent soft- serve ice cream cones.
While Chipotle has spent less on marketing than its peers in the past, that may be changing. To spur sales the company will continue its signature emotional marketing and also will “add on traffic-driving parts to that marketing,” Ells said during an Oct. 18 conference call with analysts. Chipotle will spend about 1.4 percent of sales on marketing this year, while McDonald’s ad expenses were $768.6 million in 2011, or about 2.8 percent of revenue, which doesn’t include “significant” costs incurred by franchisees at the local level, according to a company filing.
“I haven’t really seen anything from Chipotle that shows anyone biting into a burrito,” said Bob Dorfman, executive creative director at Baker Street Advertising in San Francisco, who has worked on Taco Bell marketing.

How Cheap

Many restaurant commercials “show the product and talk about how cheap it is” and Chipotle hasn’t done that, Dorfman said. “If they’re having some issues with sales, generally the trend is you move into that direction.”
Along with more advertising, the company would consider testing breakfast foods, new menu items and adding drive-through windows to some restaurants, Ells said during the call. Other fast-food chains, including Wendy’s Co. (WEN) and Taco Bell, have recently added breakfast items, such as biscuit sandwiches, sausage and egg burritos and home-style potatoes, to attract consumers. Some Panera Bread Co. (PNRA) units have drive-throughs.
Americans like drive-throughs: U.S. fast-food chains generated 24 percent of their sales that way in the 12 months ended in August, data from NPD Group Inc. show. Breakfast made up about 10 percent of U.S. restaurant sales in the year ended in August, according to the Port Washington, New York-based researcher.
“I would lean probably more toward something like breakfast if we were looking at expanding the menu,” Ells said. “None of these things are off the table by any means.”
Chipotle should proceed with caution because adding new menu items and window service may complicate and slow down their stores, Tarantino said.
“One of the things that makes Chipotle so successful is how simple the operating model is,” he said.
(Source: Bloomberg)

Unilever Sales Beat Estimates as Brazil Leads Gains

Unilever (UNA), the world’s second-biggest consumer-goods company, reported third-quarter revenue growth that beat estimates and industry peers as consumers in emerging markets such as Brazil bought more personal-care products.
So-called underlying sales increased 5.9 percent from a year earlier, the London- and Rotterdam-based maker of Axe body sprays said today. The median estimate of 13 analysts surveyed by Bloomberg was for a 5.3 percent gain. Units sold rose 3.4 percent, more than the 2.5 percent gain estimated by analysts.
The maker of Magnum ice cream has accelerated the rollout of shampoos and deodorants to emerging markets such as Indonesia and China to offset slowing growth in developed markets, where higher price tags have deterred consumers. Revenue in emerging markets rose 12 percent and now represents 55 percent of total sales. The beat contrasts with competitors Danone and Nestle SA (NESN), which last week reported growth that trailed expectations.
“This was Unilever’s opportunity to show its strength and reliability, and we believe that this is what it has done,” Andrew Wood, an analyst at Sanford C. Bernstein, said in a research note. “The most important and impressive performance was volume growth, which was ahead of our estimate and also ahead of Nestle and Danone. (BN)

Shares Advance

Unilever rose as much as 4 percent to 28.83 euros in Amsterdam trading, the highest since Aug. 2. The stock was up 3.4 percent at 28.65 euros at 10:24 a.m., lifting its 2012 gain to 7.7 percent, compared with 12 percent for Nestle.
Chief Executive Officer Paul Polman hailed the company’s “consistent performance,” which he said was achieved in spite of a “continued high level of competitive intensity, depressed economies and increasing global imbalances and uncertainty.”
The CEO cautioned that the “environment will remain challenging.” Still, Unilever repeated its goal of a modest improvement in core operating margin this year.
Underlying sales rose 8 percent in the personal-care segment, Unilever’s most profitable unit, fueled by growth of Tresemme hair products in Brazil and the introduction of Dove Men+Care in that country. Revenue increased 11 percent in the home-care unit, boosted by the entry of Omo fast-stain removal in more than 20 markets.
Sales of food like Hellmann’s mayonnaise fell 0.4 percent, a decline over previous quarters, as competitors cut prices of spreads in Europe. Unilever said it has “taken action” to bring margarine prices in line with other brands.

Europe Improvement

Sales in Latin America grew 14 percent, fueled by Brazil -- Unilever’s biggest market in the region -- along with Argentina and Chile. In Asia, Africa and the Middle East, sales rose 11 percent, helped by Vietnam, Pakistan, India and Indonesia. Results in Africa were “mixed” because of “difficult economic situations” in Nigeria, the company said.
In Europe, sales rose 0.9 percent, an improvement over the 2.2 percent decline in the second quarter. Unilever has offered lower-priced products in Greece to meet the needs of cash- strapped consumers, while its business in Spain has “stabilized,” Chief Financial Officer Jean-Marc Huet said on a conference call. Last week, Danone said declines in Spain and Greece caused the weakest growth in sales of dairy products in more than three years.
“Things are not getting better,” Huet said on the call. “We are not economists, but it’s clear to everyone in developed markets, things are not good. It’s also increasingly clear that there is an impact on emerging markets.”

Commodity Expenses

Huet said commodity expenses this year will rise at a “high single-digit” pace, compared with previous guidance for cost inflation in mid-single digits. Prices for raw ingredients such as edible oils remain “volatile,” he said on the call.
Unilever has been pruning its food business to focus on faster-growing health and beauty products. It hired Lazard Ltd. (LAZ) to seek a buyer for its Skippy peanut butter brand, which may fetch $300 million to $400 million, two people with knowledge of the matter said earlier this month. In August it completed the sale of its P.F. Chang’s and Bertolli frozen meals businesses to ConAgra Foods Inc. (CAG) for $267 million.
Huet wouldn’t comment on the progress of the Skippy sale.
Total sales in the third quarter advanced 10 percent to 13.4 billion euros ($17.4 billion), Unilever said. Underlying sales exclude acquisitions, disposals and currency fluctuations.
“This represents another good quarter for Unilever in what was a demanding period,” Graham Jones, an analyst at Panmure Gordon, said in a note. “Unilever’s sales provide further evidence of a company on the up.”
(Source: Bloomberg)

Outsourcing Turns Inside-Out as Indians Open U.S. Centers

Janie James says she was cool at first when Indian outsourcing giant Infosys Ltd. (INFO) approached her about a job near Atlanta, even though she was unemployed. She didn’t know much about the company, and it seemed a step down from her old vice-president post at Primerica Inc. (PRI)
In the end, she decided she could use experience gleaned from her work at life-insurer Primerica and another stint at a financial-investment company to help Infosys build its insurance outsourcing business. Now James is an operations manager at the Bangalore, India, company’s first predominantly U.S.-staffed center, which opened in April.
They saw this was a city with a lot of people who were out of work and had the skills they needed for this center,” she said. “Anything that can be done to decrease unemployment is a great thing.”
James is one of thousands of workers filling outsourced jobs that are coming back to the U.S., or at least not going offshore. Indian and U.S. outsourcing companies, along with corporate icons like General Motors Co. (GM) and General Electric Co. (GE), are reversing a 20-year outgoing tide.
These companies and others, including software developer GalaxE.Solutions Inc., say some complex functions, such as human-resources and software development, are better to have closer to their own operations and to respond to customers. Indian outsourcing companies are finding it tougher to get visas for workers brought from India, and some U.S. businesses want to outsource -- yet keep jobs in the country. State tax breaks also provide incentives to hire locally.

Lowest Cost

“It used to be just about getting the job done at the lowest cost,” said Madhusudan Menon, who heads Infosys’s Atlanta center and delivery of U.S. business-process outsourcing. “Now companies are saying some jobs are best done closer to where they are, not cheap as possible somewhere else. They’re rebalancing their onshore and offshore outsourcing.”
U.S. companies with more than $1 billion of revenue sent 1.1 million technology and back-office jobs offshore during the past decade, according to the Hackett Group (HCKT), a Miami-based consulting company. While it forecasts a slowing outflow beginning in 2013, it calculates another 400,000 positions will be lost offshore through 2016.
A survey of 617 outsourcing industry executives by Boston- based HfS Research in July and August found the U.S. is seen as the most desirable region in the world to expand IT and business-services delivery centers in the next two years. India was second.

Largely Satisfied

Respondents have been largely satisfied with the offshoring of low-end jobs, such as call centers and routine IT maintenance, according to Phil Fersht, chief executive officer of the outsourcing-research company. With more complex tasks, the survey showed the headaches may have outweighed the savings.
“We’re at an inflection point,” Fersht said. “They have picked much of the low-hanging fruit offshore, but they’re frequently not getting the quality they need with the more complex functions there.” For example, 72 percent of companies said they were satisfied or very satisfied with domestic outsourcing of human-resource services compared with 41 percent who had those tasks done overseas.
The Indian offshore giants are establishing beachheads in the U.S. for political, as well as business, reasons, according to Fersht. President Barack Obama and Republican presidential candidate Mitt Romney have traded charges of being “outsourcer in chief.”

Outsource Onshore

Menon sees opportunities for Infosys to capture business from companies that want to outsource some operations while not being accused of sending jobs overseas.
The principal customer at a Milwaukee center Infosys announced in July is Harley-Davidson Inc. (HOG), which insisted that the 75 business-processing jobs it wanted to outsource at lower cost remain in the country, according to Maripat Blankenheim, a spokeswoman for the motorcycle company. Infosys said it plans to have a total of 125 employees at the center by attracting other clients.
Picking up new onshore business from U.S customers could help Infosys buttress its position against competitors such as Cognizant Technology Solutions Corp. (CTSH), which surpassed it in revenue for the first time in the quarter ended June 30, according to data compiled by Bloomberg.

Market Share

Cognizant, based in Teaneck, New Jersey, has doubled its market share during the past seven years to 18 percent for the year ended in March, according to an April 19 report by CLSA Asia-Pacific Markets. Infosys’s market share fell 4 percentage points to 21 percent, the report said. Cognizant, whose workforce is mainly in India, has stepped up its high-end outsourcing services and is hiring more employees with relationship management, consulting and deep industry experience, President Gordon Coburn has said.
Infosys has been operating in the U.S. for 25 years, though up until the past two years, only 20 percent of employees were Americans, Menon said. Infosys had about 12,000 workers in the U.S. on H-1B and L-1 visas as of June 30, according to a Securities and Exchange Commission filing by the company.
Infosys and its Indian peers now are having more difficulty obtaining U.S. visas. Last year, 54 percent of Indian petitioners’ initial requests for L-1B visas, which allow employees with “specialized knowledge” to work in the U.S., were rejected by U.S. Citizenship and Immigration Services, compared with 4 percent in 2007. Infosys said in an SEC filing that the immigration agency has “increased its level of scrutiny in granting new visas,” and cited difficulties meeting the requirements for L-1 visas.

U.S. Presence

Tata Consultancy Services Ltd. (TCS), the biggest Indian outsourcing concern with $10 billion in revenue, also is growing its U.S. presence, opening an outsourcing center outside Minneapolis in September to employ about 300 IT workers.
In 2011, Tata Consultancy augmented the work it already was performing for Dow Chemical Co. (DOW) in Mumbai by setting up outsourcing operations in Midland, Michigan, near that company’s headquarters. Tata Consultancy currently has 400 employees there, according to spokesman Michael McCabe, handing back- office functions, including supply-chain scheduling and planning for Dow and other clients.
Even with the 2,000 U.S. workers Tata Consultancy plans to hire this year, which is a 25 percent increase from 2011, Americans remain a minority of its approximately 20,000 employees in the U.S. and Canada, McCabe said. About 92 percent of Tata Consultancy’s 250,000 workers worldwide are Indians, according to the company.

Create Opportunities

Still, the onshore outsourcing centers create opportunities in cities such as Atlanta, where unemployment has been above the national average since May 2010. The area’s jobless rate was 8.9 percent in August, the latest month available, while the national rate was 7.8 percent in September.
Infosys was attracted to the area because of its many insurance and health-care businesses, according to Menon. His company saw outsourcing opportunities in those industries and a large pool of unemployed, experienced workers, he said.
“When I told the Georgia Department of Labor what I needed, they gave me 5,000 people without a job in those sectors,” Menon said. He led an Infosys team that interviewed scores of candidates at that agency’s suburban Marietta offices in January. Others, like James, were recruited.
The offshoring reversal also can be seen in U.S. companies such as GM and GE, which were early adopters of outsourcing and now are repatriating jobs.

Innovation Centers

GM said it plans to bring 90 percent of its IT work in- house and, in many cases, onshore, hiring 10,000 workers over the next three to five years. The automaker said it will open four U.S. technology “innovation centers,” one in Austin, Texas, with 500 employees, another in Warren, Michigan, with 1,500 jobs and two others in cities yet to be determined.
GE also is building a technology center outside Detroit, where it plans to employ 1,100 people, as part of a broader initiative to reseed the company’s IT capabilities in the U.S.
Mike De Boer, who led the recent development of a technology center in New Orleans for the company’s GE Capital unit, said the business needs a rapid-response approach to technology changes, such as mobile-phone applications, which requires proximity.
“The speed you need to meet customers’ requirements is all about being near to the customer,” said De Boer, who’s hired 27 IT workers so far for a facility that is slated to reach 300 employees.

Opportunities Reappear

U.S. software engineers who have lost jobs, such as Michael Zureich, say they are heartened to see opportunities reappear in their field. Zureich, who worked in auto-manufacturing processes for 24 years, was laid off by Siemens PLM Software in 2009. He became a math teacher in 2010 after a fruitless 18-month job search, he said.
Then he heard of GalaxE.Solutions, a Somerset, New Jersey, company that is shifting some of its 2,000-employee workforce from India to the U.S. It opened an office in Detroit, where it now has 200 on staff, to help develop software for U.S.-based health-care clients. GalaxE.Solutions, like a number of companies that have been repatriating jobs, received state tax breaks as an incentive to influence location.
“The complexity of the business and the agility required was increasing, and I didn’t feel we were achieving the collaboration and innovation our customers required,” Tim Bryan, chief executive officer of GalaxE.Solutions, said in an interview.
Zureich, 54, who joined the company in March 2011, said while he’s earning a little less than he made at Siemens, “I’m getting significant job satisfaction and regained a lot of the confidence I lost.”
At the Infosys center outside Atlanta, James said she is way past thinking of an outsourcing job as a step down and is learning a business that is here to stay.
“I like challenges, and it’s a notch on my belt,” she said. “Infosys is making a transition, too; when you want to do business here, it helps to give people more opportunities.”
(Source: Bloomberg)

Tuesday, October 23, 2012

Return of the Golden Age: Investors flee to gold as a safe haven during crisis

In Germany, gold is now available from vending machines, Gold to Go, in airports and railway stations. Shoppers can buy a 1-gm wafer ofgold or a larger 10-gm bar. Seeking safety for their savings, individuals purchased 150 tonnes of gold, mainly in the form of coins. Investors poured money into special funds- exchange-traded funds (ETFs) - which pool investor monies to buy over 1,000 tonnes of gold. Having earlier sold off their holding, some central banks are rebuilding gold reserves. The world has remembered JPMorgan's words to Congress in 1912, "Gold is money. Everything else is credit."

Since the replacement of the gold standard with the dollar standard, the gold price has fluctuated widely. In January 1980, the gold price reached a high of $850 per ounce, reflecting high rates of inflation and economic uncertainty. Subsequently, the recovery of the global economy saw the gold price fall for nearly 20 years, reaching a low of $253 per oz in June 1999. From 2001, the gold price began to rise due to a mixture of increased demand, especially from emerging nations such as India and China. In 2007-08, gold received an additional boost from the onset of the global financial crisis. Concern about a banking system collapse drove gold prices higher, peaking at over $1,913 per ounce in August 2011.

Gold bugs speculate about a new age of gold. In reality, the rise was driven by fear. The depth of the financial crisis, concern about the security of other assets, including once-risk- free governments bonds, and a fragile banking system prompted a flight to gold as a safe haven. The monetary policies of governments and central banks, emphasising low interest rates and printing money to restart the global economy, also underpinned the gold price. A weak US dollar and the questionable prospects of other major currencies, such as the euro and yen, drove demand for gold as de facto currency.

For investors, investing in gold is not without problems. Shares in gold mining companies may not provide the sought-after exposure to gold prices. The value of mining companies behaves more like shares than the gold price. Most investors prefer direct investment to the precious, yellow metal. Increasingly, investors use gold ETFs, a mutual fund or unit trust listed and tradeable on a stock exchange. Investors purchase fractional shares in ETFs that then invest the money raised in gold. Some ETFs invest in the metal itself. Others synthesise the exposure to gold using instruments linked to the gold price, such as gold futures and derivatives. Where the ETF uses derivatives and other financial instruments to obtain exposure to gold, it is exposed to the risk of default by the financial institutions with which it contracts.

Even where the funds are invested in physical gold, the metal is held via custodians, often financial institutions, exposing them to the failure of these entities. This is ironic given the fact that the investment in gold is specifically motivated by fear of the failure of the financial system. Investors also worry about the risk of confiscation of gold holding. In reality, any government can confiscate anything - gold, savings, property - they want to in times of economic emergency.

In 1933, President Franklin Roosevelt issued Executive Order 6102, prohibiting the private holding of gold and requiring US citizens to turn over their gold bullion or face a $10,000 fine (equivalent to around $170,000 today) or 10 years' imprisonment. In response, opportunistic coin dealers encourage investors to buy expensive 'numismatic', or 'collectible', coins, taking advantage of an exemption in the 1933 order that protected these assets from government seizure.

Seeking to reassure investors, some ETFs have installed fibre optic cable-linked cameras in their gold vaults. Investors can monitor their holdings via the internet. Of course, this clever marketing gimmick does not protect the investor from the failure of a custodian or financial counterparty as well as confiscation risk. Gold is not itself a great store of value, at least over long time periods. Gold bugs excitedly speculate about gold prices reaching $2,300. But even at that price, gold would merely match its January 1980 peak price after adjusting for inflation; in other words, the holder had earned nothing on the investment over almost 30 years!

The gold price adjusted for inflation is the same as the price in the middle ages. Dylan Grice of Societe Generale summed up the case for gold as a store of value in the following terms, "A 15th-century gold bug who'd stored all his wealth in bullion, bequeathed it to his children and required them to do the same would be more than a little miffed when gazing down from his celestial place of rest to see the real wealth of his lineage decline by nearly 90% over the next 500 years."

The gold price can also be very volatile. In late 2011, after reaching record levels, the gold price fell nearly 20% very quickly. Warren Buffett observed that if stock investors are driven by optimism about prospects, then "what motivates most gold purchasers is their belief that the ranks of the fearful will grow". Harry 'Rabbit' Angstrom, the central character in John Updike's 1970s novels about American suburban life, spends $11,000 on the purchase of 30 gold Kruggerrands (a South Africa-minted gold coin). Rabbit explains the purchase to his wife, "The beauty of gold is, it loves bad news."

In economic chaos, war or collapse, gold reappears, reasserting it grip on humanity.
(Source: Economic Times)

Expect better sales going forward: Kapil Mehan, Coromandel International

In an interview with ET Now, Kapil Mehan, MD, Coromandel International Ltd, speaks about the company's earnings. Excerpts:

ET Now: If you could walk us through your sales and profits which have both declined this year? Apart from the weak monsoon, what else led to the fall?

Kapil Mehan: Due to weak demand and poor monsoon, the sowings have been affected as well as the price of fertilisers had moved up due to rupee depreciation. All of that contributed to the overall demand for the complex fertilisers and phosphetic fertilisers like DAP, etc., going down by almost 24%-25% in this kharif season. That impacted our sales also. If you look at overall market volumes, our drop is only about 7%-7.5% in the top line and about 16% at the net profit level.

ET Now: In this quarter, you have recognised a subsidy income of Rs 107 crore by way of subsidy for the previous quarters. If we adjust this income, your PAT shows a very sharp decline. Do you expect that this trend will continue?

Kapil Mehan: We do not give any guidance as a policy on future quarters. This quarter was a particularly challenging quarter in terms of the demand being low, prices being high and the overall supply in the market being far more than demand. That obviously had an impact on margins. That situation should improve as we go forward. Rabi is expected to be normal and good. Our raw material supplies have also improved and we are expecting normal supplies to come from Tunisia as well as South Africa. All that should help us in ramping up our production going forward.

ET Now: Your margins have also contracted in the quarter. What sort of margins are you expecting going forward?

Kapil Mehan: It will be normal margins. For agricultural business, we should always look at least 12 months later rather than looking at individual quarterly data because individual quarterly data can sometimes be very misleading, whether it is good or bad. We have to look at more from annualised perspective rather than a quarterly perspective. This is an agri business. This has seasonal impacts.

ET Now: What kind of growth you are anticipating going forward?

Kapil Mehan: We expect better sales going forward as far as the overall market size is concerned. Whatever compression had to happen has happened. We may see a little bit of demand compression continuing in the next quarters also because the difference in urea price and other fertilisers is still very high and this will continue to lead to slightly under use of complex fertilisers and phosphetic fertiliser as compared to urea and that challenge will contribute there. But the cost pressure will ease out going forward because we have seen the rupee appreciate and the global prices are more or less stable as far as raw materials are concerned. That should be helpful.

ET Now: The expansion of your Kakinada unit has now been completed. How do you expect it is going to help your top line and bottom line going forward?

Kapil Mehan: We are in the final stages of the mechanical completion of the project. We were 94% complete at the end of September. We hope that by end of this month or early November we will start production from the plant and the plant will add about 4.5 lakh tonnes per annum capacity to our Kakinada plant on an annualised basis.

ET Now: What is the update on the Tunisia JV and how is the recent unrest impacting you? Are we going to see a further delay in the starting of that plant now?

Kapil Mehan: The plant is now almost complete and we expect the commercial production to begin by November and the material from that plant will start flowing in by the end of November and December onwards. All the production facilities in Tunisia are now normal.
(Source: Economic Times)

China’s coffee industry is starting to stir

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Coffee in China used to be tarred with the same brush as capitalism. But as capitalism has caught on in China, so has coffee: the mainland market for retail packaged coffee has grown at a compound rate of 18 per cent a year since 2007, and could rise another 75 per cent to Rmb16bn ($2.5bn) by 2017, according to research firm Mintel.
It must be the marketing coup of all time: the transformation of China from a tea leaf nation to a country of coffee drinkers – in spite of the fact that most Chinese still abhor the taste of the bitter brew. Western coffeehouse chains are stumbling over each other to open up in China, and Starbucks – which has a shop on every major street in China’s biggest cities – expects the mainland to be its second largest global market by 2014.
Nestlé, the food group, already sells two out of three cups of soluble coffee on the mainland. Last week, the Swiss company chose China to release its nine-month global sales – announcing organic growth in emerging markets of 11.7 per cent for the first nine months year on year, compared with 2.4 per cent in developed markets and a full-year global forecast of 5-6 per cent.
Nestlé China’s food and beverage sales have risen by a 16 per cent compound annual growth rate since 2008, and coffee sales have grown faster than that, says Roland Decorvet, head of Nestlé China. With China’s per capita coffee consumption only four cups per year compared with 400 in Japan, the potential is obvious, he says. “Contrary to what you might expect, the biggest instant coffee cultures in the world are all tea cultures” like Japan and the UK.
So how did Nestlé and Starbucks persuade the Chinese to buy a product the taste of which they dislike? “The short answer is that when the Chinese drink Nescafé, they are not drinking coffee but a sweet concoction of water, milk powder and sugar,” says Torsten Stocker, partner at Monitor Group consultants.
“Coffee is an alien taste for the Chinese,” says Rebecca Lian, head of Nestlé R&D in China. “They don’t like the bitter taste because it reminds them of traditional Chinese medicine.”
Black coffee may not be a hit but coffee drinks are. Starbucks, one of the most successful western brands in China, has adjusted its products to deal with the Chinese distaste for coffee. “There is very little pure coffee sold at Starbucks,” says Shaun Rein of China Market Research in Shanghai. Many mainland Starbucks customers prefer milkshake-type drinks, teas, juices and localised flavours like the green tea latte. Chinese go to Starbucks for the culture, not the coffee.
In China, Starbucks is a dine-in, not a take-out destination. Customers are invited to linger, log into the free WiFi and use its coffee houses the same way that earlier generations used tea houses: to socialise and do business.
Xu Lu, general manager of the Cocoa & Coffee Division of China Tea Co, says she felt “drunk” when she tasted her first cup of coffee. Now she thinks more people are “enjoying the coffee in Starbucks, as well as the culture”.
But when Nestlé recently changed the recipe for Nescafé in China for the first time in 15 years, it made Nescafé taste less like coffee, rather than more. The end result was a drink with a texture and consistency closer to chocolate milk. Mr Decorvet says Nestlé does not believe in “food neo-colonialism”. “Why should we tell the world what coffee should taste like?” he asks.
Coffee drinks are more and more popular all the time in China – as long as they do not taste too much like coffee.

China’s Factories Losing Pricing Power in Earnings Threat

Chinese factories are losing pricing power in the worst wholesale-cost deflation since 2009, signaling corporate earnings may deteriorate further and putting a damper on global inflation pressures.
Steelmaker China Oriental Group Co. (581) says falling prices are wiping out profits, while Yunnan Copper Industry Co. (000878) cited the declines for a third-quarter loss. The producer-price index (SHCOMP) fell 3.6 percent in September from a year earlier and may stay negative until the second half of 2013 without large stimulus, according to Mizuho Securities Asia Ltd.
With the U.S. reporting the longest stretch in three years that Chinese imports have gone without a price increase, the trend also gives policy makers around the world more room for easing to support faltering global growth. Sluggish earnings growth may prompt the government to reduce corporate taxes to aid earnings and help boost spending after China’s expansion slowed for a seventh quarter.
“Reduced inflation pressure should expand the space for policy makers to take pro-growth actions in their countries,” said Shen Jianguang, chief Asia economist at Mizuho in Hong Kong. Chinese officials are likely to reduce banks’ reserve requirements ahead of a Communist Party congress next month, said Shen, who formerly worked at the International Monetary Fund and European Central Bank.

Largest Drop

Chinese industrial companies’ profits dropped 6.2 percent in August from a year earlier, the largest decline this year and the fifth straight monthly deceleration, a statistics bureau report showed last month. Data for September are due Oct. 27.
Last month’s 3.6 percent drop in wholesale prices from a year earlier was the seventh straight decline and biggest since October 2009. The decline was caused primarily by weak demand and also by overcapacity, Sheng Laiyun, spokesman for the National Bureau of Statistics, said at a press briefing Oct. 18.
Falling earnings have weighed on Chinese stocks this year. The nation’s benchmark gauge, the Shanghai Composite Index, has declined about 3 percent in 2012, heading for the third straight annual drop. It was down 0.5 percent as of 2:12 p.m. local time. The MSCI Asia Pacific Index is up more than 7 percent this year and fell 0.4 percent at 3:11 p.m. in Tokyo.
Elsewhere in the Asia-Pacific region, Sri Lanka left interest rates unchanged for a sixth month. Singapore’s inflation accelerated more than economists estimated in September, supporting the central bank’s decision to refrain from easing monetary policy this month.
In Taiwan, industrial production probably rose 6.5 percent in September from a year earlier, which would be the biggest gain since February, a Bloomberg News survey showed.

French Confidence

In Europe, France will report October measures of industrial confidence and the production outlook while the U.K. will report mortgage approvals for September.
The Bank of Canada will probably hold its benchmark interest rate at 1 percent, extending the longest pause since the 1950s.
Vice Premier Li Keqiang, who may succeed Premier Wen Jiabao in March, said the country should introduce more structural tax cuts and expand to the whole country a trial program of levying a value-added tax instead of a tax on revenue, according to a Xinhua News Agency report on Oct. 21.
China’s economy expanded 7.4 percent in the third quarter from a year earlier, compared with 7.6 percent in the April-June period. The International Monetary Fund this month cut its forecast for global growth this year to 3.3 percent from a previous estimate of 3.5 percent.
Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong, said China’s government should offer more tax support and increase subsidies in some industries to help cope with falling prices.

Import Prices

Data from the U.S. Labor Department showed prices of imports from China rose almost every month from September 2010 to February 2012 before declining or remaining unchanged since then.
JPMorgan Chase & Co. projects global consumer prices will rise 2.8 percent in the second quarter of 2013, the same pace as in the second and fourth quarters of 2012, according to an Oct. 19 research report which didn’t include forecasts for other periods.
U.S. Federal Reserve policy makers last month decided to start a third round of large-scale bond buying to aid growth, while the Bank of Japan expanded its asset-purchase program by 10 trillion yen ($126 billion).
To be sure, the worst of the deflation may be over, according to economists at Citigroup Inc., who forecast year- over-year producer-price declines to ease starting this month on improved demand and new projects.

Monthly Change

Wholesale prices declined 0.1 percent in September from the previous month, compared with a 0.5 percent drop in August, government data showed. Official data showed signs of an economic pickup in September, with factory output and retail sales accelerating.
The economy is in the early stages of a recovery and “corporate profits may rebound in the next two quarters,” said Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong.
A rebound can’t come soon enough for companies including Angang Steel Co. (347), China’s largest Hong Kong-traded producer of the alloy. Angang on Oct. 12 projected a loss of 3.17 billion yuan ($507 million) for the first nine months of this year on a weak market and low prices.
Some companies based outside China are also suffering. LG Chem Ltd. (051910), South Korea’s biggest chemical producer, said Oct. 19 that it posted a 10 percent drop in third-quarter profit as demand waned in China, its biggest market. Rio Tinto Group, the world’s second-biggest mining company by market value, said Oct. 10 it will cut jobs and delay decisions on building projects because of reduced growth in China.

Damping Investment

Producer-price deflation “will hurt profits and this has already damped corporate investment,” said Tim Condon, chief Asia economist at ING Financial Markets in Singapore, citing fixed-asset investment growth of 20.5 percent for the first nine months of 2012, compared with 24.9 percent expansion in the same period a year earlier.
The drag should cease once PPI rises on a month-to-month basis, said Condon, who previously worked at the World Bank.
“The crimp on profitability is certain to damp down investment appetite at the corporate level, dragging on the government’s ability to restore stability to the economy,” said Alistair Thornton, an economist in Beijing at IHS Global Insight.
(Source: Bloomberg)

Monday, October 22, 2012

Tata Nano to drive into US with $10,000 tag

The world's most affordable car, the Tata Nano, is likely to drive into the US by 2015. It is all set to take on the Western world with a few variations of the version sold in India. But will the Nano be able to steer away from the bumps in the US road, aka M&M, and not backfire given its current nil US retail network?
Tata Motors, which has been battling a global slowdown in vehicle sales and has reported a four per cent drop in September, including a drop in Jaguar Land Rover sales, has not let the slide in sales temper its ambitions for the Nano's release.
At a recent opening of a Jaguar Land Rover dealership in the US, Ratan Tata, Chairman of Tata Motors, said the car would be ready for the US market in three years and be priced below $10,000.
Abdul Majeed, Partner, National Automotive leader at PricewaterhouseCoopers (PwC), said: “With the acquisition of Jaguar Land Rover, they would be better off in an European country as far as distribution is concerned. Europeans have long been fans of small cars, because smaller tends to mean more fuel efficient.”
Tata Motors also needs to learn from competitor's mistakes. Though Tata has ceded place to rival Mahindra and Mahindra (M&M) in the last fiscal, with the latter selling four times as many SUVs as Tata in the domestic market, the company needs to take heed of M&M's bitter court battle with its US importer and distributor, Global Vehicles USA.
“If the Tata's want to become a global OEM (original equipment manufacturer), a firm presence in the North American market is vital. It is important to do that otherwise it will be extremely difficult to achieve the goal,” said PwC's Majeed.
In discussing the model's prospects to an auto magazine, Ratan Tata pointed to the popularity of small cars like the Mini Cooper and the Smart Fortwo, indirectly implying that the Nano's lower price tag would lure consumers. Nearest competitor in the US is the much larger Nissan Versa, currently the cheapest retailing at around $11,990.
(Source: Business Line)

Crowdsourcing cuts down unnecessary expenses: Arun Mehra

Arun Mehra tells Arunima Mishra how crowdsourcing is being increasingly viewed as a business proposition in India
Is crowdsourcing just a fad? How can it possibly help a brand in the long term?
When a brand crowdsources, it tells its consumers that I (the brand) am listening to you. I’m delighted that you are contributing to my idea. I appreciate the fact that you are taking ownership of the brand that you like. It also tells that I’m willing to gratify you for your idea. Creative crowdsourcing is fast gaining pace in India with brands and mentors opting for a convenient platform to engage with their audiences.
The uniqueness of this platform is that it engages socially. So, the moment a person comes and uploads an entry on Talenthouse, there is a message that goes to all her friends on Facebook that she has participated in a programme for a particular brand on Talenthouse. This allows a viral effect. For example, if you’re a writer, one out of your seven friends is a writer, too. The moment they notice that their friend is already getting an edge and taking part, they, too, want to participate. After a point, we close entries for voting; while the voting is on, I (Talenthouse user) can go back to my friends, ask them to cast their votes. So, artists can, at times, get 5,000 engagements on Facebook — a big value for brands given that when friends endorse a brand, it’s far more effective than a particular brand endorsing for itself. If it had been a fad, we would have done just a few projects and we would have faded out by now. Crowdsourcing is a reality the world over.
  • Crowdsourcing platform Talenthouse has done projects all over the world. Besides offering services to some of the biggest FMCG, telecom and paint brands (read, Pepsi, Airtel, Micromax, AXE, Kurkure, Tropicana, Nerolac), Talenthouse has also helped entertainment genre, where it tied up with bands and artistes like Metallica, U2, Paul McCartney, Lady Gaga, Pink, Rod Stewart, Kylie Minogue
  • Fashion designers like Anita Dongre and Rocky S besides a host of Indian film directors have also benefited from crowdsourcing services
  • Onir, Bollywood film director, crowdfunded I Am, his film project and gathered roughly Rs 1 crore from the public

Can crowdsourcing address strategic issues like product development and innovation? What will be the trends in India?
A lot of crowdsourcing platforms are only focusing on product design. With Kurkure, we outsourced this year’s Diwali look and feel for packaging. Crowdsourcing can contribute in more than one ways that you can think of. We have done product design, signature tune, logo design, television script, viral videos and the first look of a campaign. The crowd has contributed in all these aspects. I think, the future of crowdsourcing can be predicted with big Indian brands having now realised the potential of tapping into the community resources. This will ultimately result in co-creation wherein a brand will develop products along with its consumer.
What is the difference between crowdsourcing and co-creation? Has crowdsourcing worked in India?
For example, artiste Lady Gaga says I want a videographer to come and write for me. When two companies, brands, a brand and its consumer, a company and its suppliers collaborate it’s co-creation. When we go out and reach out to a bigger pool of talent, who we may not know, that’s crowdsourcing. We would be successful as a crowdsourcing platform if brands come back to go through the process all over again. Almost 80 per cent of the companies that I’ve approached have loved the platform. Of that, 30 per cent have adopted it and the rest have said they will come back when they have the right brief. We don’t hard sell the platform, we hard sell the opportunity. If the opportunity exists, the client will come back.
How can a platform such as Talenthouse assist brands in effective crowdsouring?
We started our journey in India a year ago with American heavy metal band, Metallica. When it came, it wanted a lead band to ‘open’ the act before they performed on stage. In just 10 days, over 200 bands from across the country responded. We got five bands from Germany who also wanted to participate. We finally got a winner, a band that Metallica loved. After that, we have hunted scripts for Vidhu Vinod Chopra, Vipul Shah (leading film directors and producers); music for Shaan (singer), Nerolac (home paint brand) besides fashion designers Anita Dongre and Rocky S. We have also done photography- and design-related work for AXE, Kurkure, Micromax.
Two things work for us — a large network and a platform that allows brands with an opportunity to engage and connect with their audiences at a fraction of cost compared to mass media-led campaigns such as the ‘Me & Meri Maggi’ (Nestlé India) and ‘Hum Mein Hai Hero’ (Hero MotoCorp), which have been backed by budgets of around Rs 20-30 crore. One doesn’t have to spend so much on a crowdsourcing platform.
A platform like Talenthouse allows brands to explore a creative pool of talent that they would otherwise not have been exposed to. They (companies) can’t get quality despite the claims of having millions of fans. Take a company that is looking to get its logo designed. It needs to go to the platform where people go. We have networks with 300-plus design, art, fashion and photography schools in the country, an active base of 12,000 artists, who work with us. You don’t need to advertise at all, you need to put, what we call, a creative invite (CI) on our platform.
With Micromax, we organised a creative invite to crowdsource its new logo. From the 2,500 entries received, the winning new punch logo was unveiled at the Asia Cup 2012. Airtel’s popular campaign ‘Har Ek Friend Zaroori Hota Hai’ got the required momentum on the digital platform through Talenthouse. Pepsi experimented with designs for its 2012 calendar followed by the Pepsi Football Anthem Video, all done through Talenthouse.
How much of the feedback and inputs that you get on a crowdsourcing platform can be actually depended on?
It is authentic when a brand starts using what you have given it. Micromax took its crowdsourced logo and adopted it on its phones. It’s also there on each and every media buy that it does. MAMI (Mumbai Film Festival) also declared a winner (through crowdsourcing) and is using a poster at this year’s event. Interestingly, some brands are coming back to us after seeing the benefits of the model. See, 90 per cent of our core audience is in the 18-25 age group, most of whom are budding artists going to schools and colleges. Only 10 per cent are professionals who are looking (through crowdsourcing) for that one big break.
Does size matter in this business and does Talenthouse have that critical mass?
We have done 370 projects globally and three lakh artiste communities have got engaged with us in various projects. In India, we’ve 73,000 fans on Facebook, over 70,000 Twitter followers, over 13,000 artists who have engaged with us. Also, our platform is clear that the concept is for the artiste, by the artiste, and so, we don’t have a participation cost unlike other platforms that would typically charge some sort of fee. However, there’s some cost involved in reaching out to the right kind of people.
Are there just specific tasks that are best outsourced to crowds? And how can companies distinguish between quality and noise?
Any company getting into crowdsourcing needs to know what it wants out of it. Micromax wanted a final product — its brand logo. Similarly, Nerolac wanted a signature tune. Some companies only want viral videos with a flurry of options and looks to choose from. When the ‘crowd’ gives a brand 100 entries, the brand will get at least 10 good ones. Twenty other entries might have interesting ideas/concepts but could be lacking in one area or the other. Design, photography and music are some of the areas where we get good responses from the crowd. We are now finding many business houses opening up to this phenomenon. Creative crowdsourcing platforms like Talenthouse, and project-based employment platforms like Amazon Mechanical Turk are offering integrated platforms of the internet and digital association, help too.
Can you give us some examples to demonstrate the kind of sectors/companies that are using crowdsourcing initiatives effectively?
Crowdsourcing, just like e-commerce, social networking, is here to stay. It may take different avatars. So it can be as simple as someone asking through the ‘status update’ on Facebook about the latest movie while the crowd contributes with suggestions. Wikipedia is the largest example of crowdsourcing, Yahoo! Answers India is also a portal where the crowd contributes. In television, shows like ‘India’s Got Talent’ and ‘Sa Re Ga Ma Pa’, for instance, are also where the crowd contributes. Any project that we crowdsource takes six to eight weeks.
Brands like Procter & Gamble, for example, claim that more than half of the new product innovations come through its (crowdsourcing) platform Connect + Develop. Back home, we have seen brands like Mahindra Rise and Lays partner with audiences for product development. From FMCG giants to SMEs, everyone wants to use the crowdsourcing platform. I would go as far as to say nine out of 10 brands indulge in crowdsourcing.
Product design is one of the most popular routes to engage consumers. Opium eye wear, for instance, crowdsourced a sunglass design. Likewise, fashion designers Rocky S and Anita Dongre crowdsourced accessory designs. Even in entertainment, some of the biggest names are open to crowdsourcing. Music can be created along with lyrics; even the actors for movies can be identified if you crowdsource ideas on the right platform. While Bollywood filmmakers like Vidhu Vinod Chopra and Vipul Shah have used Talenthouse to tap the smallest of towns for script writers, choreographer Rajeev Surti used the platform to search for an assistant for his film projects. Today, I see many filmmakers reaching out to the masses as creativity can stem from anyone. The next active community will be of the writers.
(Source: Business Standard)