Monday, June 24, 2013

Indian demand provides spark for Japanese consumer electronics companies

 
It is not without reason that companies such as , , , and are investing significant sums in India. For these brands, in India continues to be high; in developed markets, their business is slowing.

Panasonic, for instance, has recently announced plans to set up a second manufacturing facility in India for business-to-business products such as energy and high-definition video conferencing solutions. It has also lined up an investment of about $250 million towards marketing and advertising by March 2015. This follows the completion of its first manufacturing unit in Haryana, at an estimated investment of Rs 1,000 crore. The company is also scouting for strategic partners for non-consumer electronic products such as energy solutions, security and surveillance systems, information technology and telecom products.

For the year ended March, Panasonic's global business recorded a net loss of $7.5 billion. After the announcement of the results, the company said it would return to profit in 2013-14 by trimming unprofitable businesses and focusing on emerging markets such as India, where the appetite for its products was growing. "India, without question, is a key market for us," Panasonic President Kazuhiro Tsuha had said during his visit to India in April.

Panasonic isn't alone. Hitachi has lined up investments of about Rs 4,000 crore by March 2016 to establish a manufacturing plant in India, hoping to exceed Rs 20,000 crore in revenues by 2015-16, an announcement made by Hitachi President Hiroaki Nakanishi at the company's recent board meeting in India. In the past few years, even as Japanese consumer electronics firms focused on China, Korean majors Samsung and LG swept the Indian market with aggressive pricing, local production and huge product offerings. During this period, Japanese companies didn't revise prices and took time to bring new products here. As a result, they lost their dominance to Korean companies.

"It's the anti-Chinese sentiment that is driving Japanese investments towards India. Years after focusing on China, Japanese companies are now taking a more regionally balanced approach," said a consultant with a global advisory firm.

Through the past year, most Japanese consumer electronics makers have reduced prices by 10-20 per cent in India to counter aggressive pricing by their Korean rivals, Samsung and LG.

Akai, which tried entering the Indian market a third time in 2010, is playing on pricing to gain a foothold. "The brand has a good recall among mass Indian consumers. We would certainly capitalise on that. But we would also offer premium products at a much cheaper price," Managing Director Pranay Dhabai said in a recent interview with Business Standard. Though its products would be 8-10 per cent cheaper, the company claims quality would be on a par with that offered by competitors. The company doesn't plan to set up a manufacturing facility in India in the near future.

"India, a high-growth market, is, and will continue to be one of the key markets for Sony. In FY12, Sony made a marketing investment of Rs 550 crore towards ATL (above the line) and BTL (below the line) activities. We plan to make significant investment in the coming years as well," said Sunil Nayyar, head (sales), Sony India.

Company executives said the Sony India unit had already jumped to the fourth position in 2012-13, behind its units in the US, China and Japan, owing to double-digit growth in categories such as laptops and flat-panel TVs. In 2012-13, Sony India's sales rose 30 per cent to Rs 8,206 crore. Nayyar said the company recorded revenue of Rs 6,000 crore in 2012-13. "We are on track to trebling our revenue to Rs 20,000 crore by 2015," he added. While Sony is yet to decide on setting up a plant in India, Sharp has announced plans to invest about Rs 700 crore to manufacture air-conditioners (ACs), refrigerators and microwave ovens in the country. AC maker Daikin is recording yearly growth of about 20 per cent, ahead of the market average. "We will double our manufacturing capacity to a million units a year at our existing factory at Neemrana in Rajasthan, through the next couple of years," said Kanwal Jeet Jawa, managing director, Daikin Airconditioning India. The company has already invested Rs 250 crore in the facility.

"We will focus on making India a manufacturing hub. We plan to export products from India to other markets, starting with West Asia and the African region…. The government is proactive in developing a framework to bring major transformation in the ecosystem to promote local manufacturing," Panasonic said in an e-mailed reply to a query.

Both Sony and Panasonic are increasing distribution and retail presence across India, focusing on regions beyond the metros, though tie-ups with organised retail chains and local standalone shops.

"The growing, young consumer base in India, a potentially huge growth economy, and the government of India's strong efforts to woo Japanese investment are key reasons behind the manifold increase in interest shown by Japanese companies in India. Recent investment announcements by companies such as Panasonic, Honda and Sharp are an indication of the fact that the Indian market is set to drive their growth," said Mritunjay Kapur, country managing director, Protiviti Consulting.

Experts say currently, India's contribution to the revenues of Sony and Panasonic is three to five per cent; the companies plan to raise this to at least 10 per cent in the next few years, as developed markets such as North America, Europe and Japan slow.

At present, Sony is among the top three companies in digital cameras, flat-panel TVs and laptops in India. Panasonic is ranked third in the split-AC segment, after Voltas and LG; in the flat-panel TV category, it is fourth, after Samsung, Sony and LG.

BETTER LATE THAN NEVER
To gain lost ground from Korean majors Samsung and LG that swept the Indian market with aggressive pricing, local production and huge product offerings, Japanese companies have reduced prices by 10-20 per cent
  • PANASONIC has announced plans to set up a second manufacturing facility in India for business-to-business products such as high-definition video conferencing solutions. It has also lined up an investment of about $250 million towards marketing and advertising by March 2015. It has completed its first manufacturing unit in Haryana, at an estimated investment of Rs 1,000 crore. The company is also scouting for partners for non-consumer electronic products such as security and surveillance systems
  • HITACHI has lined up investments of about Rs 4,000 crore by March 2016 to establish a manufacturing plant in India
  • SHARP has announced plans to invest about Rs 700 crore to manufacture ACs, refrigerators and microwave ovens in the country
  • DAIKIN has said it would double its manufacturing capacity to a million units a year at its Neemrana factory in Rajasthan. The company has already invested Rs 250 crore in the production facility
(Source: Business Standard)

Telcos increase spend on cable as data service demand rises

 
India’s top telecom service providers are increasing expenditure on building fibre optic infrastructure to meet the rise in demand for data services even as voice offers less headroom for growth and spectrum becomes costlier.
India’s largest telecom operator Bharti Airtel Ltd, for instance, said it has been “overinvesting”, having ploughed $500 million into building its next generation cable systems in the last four-five years. “We have invested in multiple submarine cables around the world both for servicing our enterprise and carrier customers,” said an Airtel spokesperson.
The company’s national long distance (NLD) infrastructure comprises 171,610 route km or Rkm of optical fibre and a global network of 225,000Rkm, covering 50 countries and five continents.
Likewise, Vodafone India Ltd and Idea Cellular Ltd officials said the companies are steadily increasing their investment in building fibre optic networks.
Idea had an optical fibre network of 74,000km on 31 March while Vodafone is expanding its existing 120,000km of long-distance fibre across the country. The company has also set up another 4,000-5,000km network in cities for enterprise customers, said Naveen Chopra, head, Vodafone business services.
Analysts agree that fibre optic networks are necessary as there isn’t enough spectrum to service data customers. Telecom operators get only 5MHz of 3G (third generation) spectrum each, part of which is also used for voice to prevent call drops in the big cities.
Fibre optic cables, according to industry estimates, typically cost around Rs.5-6 lakh a kilometre, going up to Rs.1 crore in a big city.
“It’s not a cost-based approach (for instance, comparing the cost of laying down a kilometre of fibre versus buying 5MHz of spectrum) but based on a long-term opportunity. There are no estimates for this (the comparison)—they vary from geography to geography and customer type,” said a telecom consultant who did not want to be named.
Telcos derive, on average, 20% of revenue from data and SMS (non-voice revenue), double the 10% it was in 2009. The share of SMS in non-voice revenue has fallen from 50% then to 35% in the same period, according to analyst estimates. In developed markets such as Europe and the US, data is as much as 50-60% of the revenue of telecom operators.
In India, too, data revenue for telcos is on the rise with high revenue-generating subscribers, especially in metros, consuming more such services. According to a Nokia Siemens Networks 22 May study, mobile data in India nearly doubled in 2012.
Bharti Airtel’s data customers now represent at least 23% of the base. This has reflected in data traffic growth and 3G (third generation high-speed mobile services) customer growth of more than 135% from a year ago, with non-voice revenue making up 17.4% of Bharti Airtel’s total India revenue in the year ended 31 March.
Bharti Airtel’s India and South Asia mobile services revenue stood at Rs.44,023.5 crore for the year ended 31 March. The company does not disclose its India revenue separately.
Idea also derived 21.8% revenue from data and value-added services in the year ended 31 March. “Data business will become big and our proportion of investment (in fibre optic cable) is increasing,” said Akshaya Moondra, chief financial officer of Idea.
Even though the last mile connectivity (to the home) is wireless, data has to be carried over fibre, for which “one needs to make the investment”, he said.
In fiscal 2013, Vodafone spent Rs.4,730.1 crore “on future growth areas including 3G and data”. Vodafone’s data revenue grew 50.5% year-on-year to make up 7% of its revenue in fiscal 2013.
“As more and more data is being used, you will need more fibre technology. Anything that is data hungry, you will need fibre optic cables to ship the information across,” said Chopra of Vodafone.
With every telco planning investment in fibre optic, telecom operators are considering a single entity to manage the network infrastructure.
Idea’s Moondra said there was a large amount of redundancy in fibre optic networks, so it would help to have a single company apportion capacity to telecom companies, similar to tower sharing.
Sharing of fibre-optic infrastructure is likelier for so-called backhaul services (connecting core telecom networks with smaller ones) than last-mile connectivity (connecting directly to the enterprise/service customer location).
“This strategy is critical,” said Mritunjay Kapur, country managing director of Protiviti Consulting Pvt. Ltd. “As broadband starts booming, we will see telecom operators building infrastructure together. Managing a fibre optic network is not as complicated as managing a tower business. So the joint ventures between companies could be for sharing capital expenditure and additional usage, than just infrastructure management.”
Mukesh Ambani’s Reliance Jio Infocomm Ltd, which is planning to launch its fourth generation (4G) services, has reached such IRUs, or indefeasible right to use, agreements with telcos. On 2 April, it announced a fibre optic infrastructure sharing deal with brother Anil Ambani’s Reliance Communication Ltd and on 23 April, it announced an IRU agreement with Bharti Airtel for data capacity on its submarine cables.
“Fibre optic allows various services like IPTV (Internet Protocol television), VoIP (voice over Internet Protocol), etc. on a device and can be controlled for data usage like a tap controls the flow of water,” said Romal Shetty, head of telecom and partner at advisory firm KPMG. “On the other hand, spectrum is like pipes where limited water goes through them and convergence of data services becomes tougher.”
Alok Shende, founder director and principal analyst, Ascentius Consulting, said: “Rapid growth in adoption of high speed Internet in geographically contiguous areas will pose a new sort of dilemma to telecom operators—should the operator continue to serve customers through wireless networks or should the operators invest in fibre-optic networks and offer remunerative triple-play (voice, video and data) services?
He said that the manner in which Indian consumers adopt broadband Internet will determine the risk profile of last-mile fibre optic investments.
(Source: Mint)

Bajaj plans bike blitzkrieg riding ‘less-is-more’ mantra

 
Rajiv Bajaj swears by the ‘less-is-more’ mantra. His motorcycle business is testimony to this faith where two brands — Pulsar and Discover — have been the biggest growth engines for some years now.
The Managing Director of Bajaj Auto is now preparing for a blitzkrieg of launches this fiscal which will see six new Discovers (two of which will debut next month) and at least two Pulsars. Isn’t this a detour from the ‘less-is-more’ route? At least, this is what some industry observers believe is the case.

Just 2 categories

Bajaj disagrees with this view. “For our rivals, the brand name is the name of the product. In our case, it is the name of the category,” he says. The Pulsar, for instance, is in the sports category while the Discover is the commuter bike.
“Today, I have half-a-dozen Pulsars and am developing half-a-dozen more. However, they are within one category called sports and one brand called Pulsar,” Bajaj says.
The same holds true for the Discover, which is in the commuter category. All these bikes belong to the same family, with the same DNA. This does not mean, though, that all are necessarily successful.
Bajaj cites the example of German automaker BMW, which is one brand with a host of products, such as the 3, 5 and 7 series. Each of these epitomises the BMW brand of being the ultimate driving machine.
“Our competition develops products while Bajaj Auto develops platforms. As a result, development and manufacturing costs are coming down while at the front end, advertising costs are falling too,” the MD says. This is what has helped the company sustain its EBITDA (earnings before interest, tax, depreciation and amortisation) margins at 20 per cent for many years now.
The twin-brand focus has also helped the company stage a strong comeback in motorcycles just when it seemed it was losing its way back in 2008-09. At that time, it had an array of models in its portfolio which were not doing the trick in taking on (the then) market leader, Hero Honda.

Changed dynamics

However, the launch of the Discover 100, quickly followed by its 150cc sibling, put Bajaj Auto back on track in the commuter segment. More recently, the creation of new platforms is expected to take the growth story forward with additional volumes coming in from the Platina and Boxer.
The dynamics of the motorcycle segment have also changed with Hero and Honda parting ways which means the leadership stakes will become more intense in the coming years. Honda is now pulling out all the stops to counter the top-selling Splendor, which is in the hands of its former ally.
(Source: Business Line)

Nestle to Open China Factories on Rising Demand Amid Slow Growth

 
Nestle SA (NESN), the world’s biggest food maker, said it will open two factories in China next month to tap growth in the world’s most populous nation even as the economy slows.
The Swiss foodmaker will open a coffee plant in the eastern province of Shandong, and another food factory with Chinese partner Yinlu Foods Group, Roland Decorvet, the company’s Greater China chairman and chief executive officer, said in a June 21 interview in Beijing. The company didn’t disclose the investment amount.
The Vevey, Switzerland-based firm, maker of Nescafe coffee and Maggi food seasonings, is relying on the world’s second-largest economy to boost sales as demand in other emerging markets slows. Nestle reported in April its slowest first-quarter revenue growth since 2009 as sales for its products in the Asia, Oceania and Africa region decelerate, and government austerity programs weigh on growth in Europe.
China’s economic growth unexpectedly slowed in the first quarter. Still, the weaker economy hasn’t hurt business in the Asian nation, Decorvet said. The Chinese government is trying to boost domestic consumption for growth while reducing reliance on exports and investments.
“We are quite confident for the market,” he said. “People still need to eat. The government clearly wants to focus on the growth of the domestic economy. The wages keep increasing; the urbanization keeps increasing as well.”

Market Share

Nestle, which also sells Nespresso, had the largest market share in coffee sales in supermarkets and shops in China last year with 72 percent, followed by Kraft Foods Group Co. (KRFT)’s 12.5 percent, according to data from researcher Euromonitor.
Nestle’s new Shandong coffee plant, its second coffee extraction factory in China, will double the foodmaker’s coffee making capacity in China over the next two years, Decorvet said.
The Swiss company will also open its fourth plant with Yinlu Foods Group, in Chuzhou city in China’s eastern Anhui province, boosting its partner’s production capacity by 25 percent, Decorvet said.
Yinlu makes peanut-milk beverages to congees and Nestle took a 60 percent stake in the company in 2011.
Nestle, which more than doubled Greater China sales last year to 5.16 billion Swiss francs ($5.61 billion), has been expanding in China this year.
In April, the foodmaker said it would invest 500 million yuan to expand its ice cream business in the Southern Chinese province of Guangdong and spend $16 million on a coffee center in the southwestern Yunnan province.
(Source: Bloomberg)

A 10-Step Program for India’s Economy: Jim O'Neil

 
It’s fashionable to say the era of strong emerging-market growth is over. As the U.S. recovers, the global cost of capital will rise, holding back investment; against this background, avoiding the next crisis is the best that most emerging economies can do. If you take this view, India might seem a perfect example, with its widening current account deficit, heavy public borrowing, persistent inflation and weak currency.
I don’t think so. As a general matter, emerging-market gloom is overdone. India, in particular, could teach the pessimists a lesson.
 
Last week, I made a quick visit to see the chief minister of Gujarat, Narendra Modi. He’d asked me to give a presentation on how India could realize its still-enormous potential. I went through points I’d first discussed in a paper I co-wrote with Tushar Poddar in 2008: Ten Things for India to Achieve its 2050 Potential. It’s striking to me that, five years later, our recommendations don’t need revising. (They do need elaborating, and I’ll get into more detail in an updated study and further columns. Modi and I are planning a conference of experts before the end of this year.)
I’ll state no opinion on Modi’s chances of becoming prime minister after next year’s general election -- it has been announced that he’ll lead the opposition Bharatiya Janata Party’s campaign. He’s a controversial figure. Detractors call him a sectarian extremist. I will say this: He’s good on economics, and that’s one of the things India desperately needs in a leader.

Cultivating Growth

Like all Indians, Modi loves acronyms. Me too. I admire his MG-squared -- minimum government, maximum governance -- and P2G2 -- pro-active, pro-people, good governance. That sums it up pretty well. I don’t think it’s a coincidence that Gujarat has avoided the slowdown that has almost halved India’s national rate of growth. The state just keeps on growing at double-digit rates.
Long-term growth depends ultimately on just two things -- the number of workers and how productive they are. India’s demographics are remarkable. The country is on track to grow its workforce by 140 million between 2000 and 2020. That increase is the equivalent of the working population of France, Germany, Italy and the U.K. combined.
Even with unspectacular growth of a little more than 6 percent a year, India’s economy could be 40 times bigger by 2050 than it was in 2000 -- about as big as the U.S. economy will probably be by then (though not as big as China). But it could do so much better than that. Growth of 8.5 percent over the entire period is possible -- with growth of more than 10 percent over the next 15 to 20 years not out of the question -- provided it makes some changes.
It’s all about productivity. India scores poorly on indexes of economic variables that are critical for economic efficiency -- worse than Brazil, China and even Russia. To change that, it needs to do 10 things:
1. Improve its governance. This is probably the hardest and most important task -- the precondition for the rest. Modi is right: Whoever leads the next government in 2014, India needs maximum governance and minimum government. There is no point having the world’s largest democracy unless it leads to effective government.
2. Fix primary and secondary education. There has been some progress here, but a huge number of young people still get little or no schooling. I sit on the board of Teach for All, a global umbrella organization for groups that encourage the brightest graduates to spend at least two years teaching. Today India has about 350 teachers in these programs. It could do with 350,000 or more.
3. Improve colleges and universities. India has too few excellent institutions. Its share of places in the Shanghai ranking of the world’s top universities should be proportional to its share of global gross domestic product -- meaning 10 universities in the top 500 (it currently has just one). Make that an official goal.
4. Adopt an inflation target, and make it the center of a new macroeconomic policy framework.
5. Introduce a medium to long-term fiscal-policy framework, perhaps with ceilings as in the Maastricht Treaty -- a deficit of less than 3 percent of GDP and debt of less than 60 percent of GDP.
6. Increase trade with its neighbors. Indian exports to China could be close to $1 trillion by 2050, almost the size of its entire GDP in 2008. But India has little trade with Bangladesh and Pakistan. There’s no better way to promote peaceful relations than to expand trade -- and that means imports as well as exports.
7. Liberalize financial markets. India needs huge amounts of domestic and foreign capital to achieve its potential -- and a better-functioning capital market to allocate it wisely.
8. Innovate in farming. Gujarat isn’t a traditional agricultural producer, but it has improved productivity with initiatives like its “white revolution” in milk production. The whole nation, still greatly dependent on farming, needs enormous improvements.
9. Build more infrastructure. I flew in to Ahmedabad via Delhi, and out via Mumbai, all in a day. I got where I needed to go -- but it’s obvious how much more India needs to do. Adopt some of that Chinese drive to invest in infrastructure.
10. Protect the environment. India can’t achieve 8.5 percent growth for the next 30 to 40 years unless it takes steps to safeguard environmental quality and use energy and other resources more efficiently. Encouraging the private sector to invest in sustainable technologies can boost growth in its own right.
I’ll have a lot more to say about the details as this project moves forward. For now, suffice to say that India’s potential is vast -- and given the will, it can be tapped.
(Source: Bloomberg)
 

Chinese, U.S. factories struggle, Europe still in slump

 
Factory output in China weakened to a nine-month low in June while U.S. manufacturing closed out its worst quarter in the last four, suggesting the road to recovery for the world economy remained an uneven one.
A day earlier, the Federal Reserve said the U.S. economy was expanding strongly enough for the central bank to begin slowing the pace of its stimulative bond purchases later this year.
Other major economies are lagging America's, however, which could limit the strength of global growth. China, the world's second largest economy, grew at its slowest pace in 13 years in 2012 and incoming data this year has been weaker than expected.
That's evident in the country's large manufacturing sector, which, according to the flash HSBC Purchasing Managers Index, contracted again in June as demand fell.
"A slowdown in the Chinese economy doesn't help the outlook for the U.S. particularly, but American growth isn't entirely dependent on what happens in China," said Philip Shaw, chief economist at Investec.
U.S. growth picked up in the first three months of the year, boosted partly by a recovering housing market, though the pace is expected to drop off in the second quarter.
Manufacturing in particular has struggled. According to information service Markit's latest survey, the second quarter was the worst for the sector in the last four as the pace of hiring and overseas demand weakened.
"Companies are certainly circumspect about any sustained revival of demand," said Markit chief economist Chris Williamson, who added that employment was also being suppressed by "the need to boost productivity, especially with intensifying competition from overseas and in export markets."
Recession in the 17-country euro zone has contributed to that lack of demand. While Markit's Flash Eurozone Composite PMI edged up this month, it remained below the dividing line between growth and contraction.
But economists expect the U.S. economy to rebound in the second half and beyond, an outlook shared by Fed Chairman Ben Bernanke, who said on Wednesday that solid growth and an expected decline in the jobless rate mean the central bank would likely begin winding down its stimulus program before the year is out.
Separate data on Thursday showed factory activity in the U.S. mid-Atlantic region at its highest level in more than two years.
EUROPE, CHINA FRAGILE
The euro zone PMI was at its highest since March 2012. But the index has been below the 50 mark dividing growth from contraction for 21 of the last 22 months.
A PMI covering services firms, which make up the bulk of the bloc's economy, jumped to 48.6 last month from 47.2, its highest since January but its 17th straight month below 50.
Markit said the latest PMI data suggested the economy would contract 0.2 percent in the current quarter.
The European Central Bank has come under growing heat to take more action to help bring a quicker end to the bloc's longest recession, but economists polled by Reuters last month did not predict any easing of policy in coming months.
China's central bank may also come under pressure to ease policy as weak demand hurts its big exporters. But while the pace of growth is slowing, few expect a hard landing.
"The chance of economic growth slipping below 7 percent is quite low, because existing measures are still effective in helping stabilize the economy," said Wang Jin, analyst at Guotai Junan Securities in Shanghai.
(Source: Reuters)

Thursday, June 20, 2013

The Best Time to Invest: Marc Mobius

 
I frequently speak at investment conferences around the world, and get questions ranging from my outlook for a particular market to highly sophisticated investment concepts. One seemingly simple question asked by a young lady years ago at a conference in Canada which I attended with the founder of Templeton Investments, the late Sir John Templeton, was particularly timeless. She asked: “I’ve just inherited some money from my grandfather. When is the best time for me to invest it?” Sir John was at the podium, and after a brief pause, gave an equally simple answer: “Young lady, the best time to invest is when you have money.” Judging by the laughs, the crowd and I appreciated his response, but I was intrigued about what he meant on a deeper level, so I did some research.
After conducting some historical market studies, I found two important emerging stock market trends: Historically, bull markets have gone up more, in percentage terms, than bear markets have gone down, and bull markets have lasted longer than bear markets. So, if you “dollar cost average,” meaning that you systematically invest the same amount each month or each quarter over a number of years, you would have found that over the long term you were in  a bull market more than you are in a bear market.1 And, while past performance is not indicative of future results, historical studies show that, in percentage terms, the bull markets have grown more than the bear markets have declined. In addition, if you have the discipline to continue adding funds during those bear market cycles, that same amount of money would’ve bought you more stocks.
The Importance of a Long-Term View
Investing during a bear market is easier said than done, and I readily admit it’s psychologically a very difficult thing to do. It requires you to look beyond the immediate bad news and toward a potential future recovery. If all your friends and neighbors are giving up on their stock market investments, it’s very easy to be swayed to do the same. In the realm of behavioral economics this is called “herding.”
If the newspapers are reporting how dire the market is and how it will get worse, you can also become subject to what we call the “whipsaw” effect – buying and selling at the wrong times. This is what happened when many sold in a panic at the bottom of the market during the US subprime crisis in late 2008 and early 2009. Then, after the market moved up by over 50%, many decided that they were missing the boat and had to get into the market, buying at the market top! If you are engaging in this type of behavior, you are almost certain to lose money. Without a long-term view you just aren’t likely to be able to have the discipline to continue investing in a bear market and wait for the potential upturn.
Diversification
So if you’ve got money to invest, and are taking a long-term view and thus not hung up on timing the market, how and where do you invest it? Another simple answer: diversify. We’ve all heard about people who made fortunes by investing in one company, but that’s not common. It reminds me of the saying, “If you want to keep all your eggs in one basket, you had better watch that basket carefully!” Most of us don’t have the capability or time to constantly monitor companies, and even professional investors realize that if they are not actually controlling the company in which they invest, some unknown or unexpected event can wipe them out. While diversification doesn’t guarantee a profit or protect against loss, it can potentially help mitigate some volatility.
I think it’s important to be diversified not only across different companies, but across different industries and, most importantly, across different countries. One reason why professionally managed strategies are so popular globally is because they enable investors to be well-diversified and have a variety of stocks that they probably couldn’t properly research and invest in themselves. Unfortunately, many investors have portfolios that invest in only one country… their own. I see this as a big mistake because they are missing out on potential opportunities all over the globe, which is the job of my team and I to uncover.  
Our research showed that in the  25 years we studied from 1988 – 2012,  and of the 72 stock markets in the world we examined, there wasn’t a single market that was the best performing for two consecutive years.2 And only one market was the best performing in four of those 25 years; Turkey.  Only two markets were the best performing for two years; Russia and Argentina.
Turkey (4 years: 2012, 1999, 1997 and 1989)
Russia (2 years: 2001 & 1996)
Argentina (2 years: 2010 & 1991))
Of the remaining 69 countries, only 16 countries had one year as being the best performing as shown in the table below. The rest of the 53 countries had not even one year of being the best performing. It’s interesting to note that China and the US are not on the list. This reminds me of another truism of successful investing; being different. If you invest where everyone else feels comfortable, you may not be investing in the right place. In investing, we believe sometimes being unpopular can be the key to success, and the right time to invest can be any time at all.
 
MarketNo. of years market was top performer
Turkey4
Russia2
Argentina2
Brazil1
Colombia1
Croatia1
Egypt1
Greece1
Indonesia1
Israel1
Jordan1
Kenya1
Mauritius1
Pakistan1
Poland1
South Korea1
Sri Lanka1
Switzerland1
Trinidad and Tobago1
Tunisia1
Source: Franklin Templeton Investments; MSCI Indexes.
MSCI Gross Official Index (in U.S. dollar terms) was used for each market
(Source: Franklin Templeton website - Marc Mobius's Blog)

IBM looks beyond the IT department for fresh growth

 
 
After decades spent perfecting the art of selling to specialist IT buyers in the corporate and government worlds, IBM has decided to try something new.
High on its calling card these days: the marketing, sales and customer service executives who are coming to control a significant slice of technology spending. And that, in turn, threatens to stir up new and unlikely business rivalries. 
Typically, the IBMs of the world fight it out with companies like HP,” said Gard Little, an analyst at tech research firm IDC. By moving deeper into marketing and other customer-related fields, he added, “they will increasingly collaborate and compete with companies like WPP, Omnicom and Publicis. IBM needs growth, and this is an area to get it.”
The push into new fields comes as IBM struggles with little growth in its core IT markets. It has become one of the first rallying cries of Ginni Rometty, who took over as chief executive officer 18 months ago.
Rather than confining itself to the back office of automation and transaction processing, she wants Big Blue to push deeper into the “front office” of business operations: the place where marketing, sales and customer service managers work to identify, win and keep customers.
The market could turn out to be bigger than the wave of enterprise resource planning systems that transformed corporate back offices in the 1990s, she said at the company’s most recent investor day.
Besides betraying a critical need for IBM to reawaken growth, the drive also reflects a sea change in corporate purchasing, as digital technology comes to affect a wider range of operations inside companies. New platforms like the cloud are also making it easier for general business mangers to find and buy IT services, shifting the buying power inside companies, said Chris Andrews, an analyst at tech research firm Forrester.
Chief marketing officers “are becoming much more technical and analytical”, driving demand for more technology to collect and analyse data about customers, said Adam Klaber, managing partner of new markets at IBM.
Some of the biggest trends in technology have combined to turn the customer-facing parts of corporate operations into ripe prospects for IT sales forces. The mass of data being collected on individuals, along with the spread of social media, has transformed techniques for identifying and building customer relationships. At the same time, the rise of smartphones and tablets has created a new channel for reaching customers that, for many businesses, is already coming to rival the PC-based internet.
Some customers report big shifts in their tech buying as a result. Over the past five years, Nationwide Building Society in the UK directed around 70 per cent of its tech spending towards internal priorities such as rebuilding its technology infrastructure, from new data centres to its core corporate applications, said Tony Prestedge, chief operating officer.
But over the next five years, he added, a similar proportion of the budget would be devoted to more customer-facing areas, such as enabling digital commerce or learning how to deal with customers most efficiently over the multiple digital and real-world channels that will be available.
“One of the critical things will be working out what your digital distinctiveness is,” Mr Prestedge said.
Collecting and analysing the mass of customer data that is now available has also brought technology into the hands of general business managers. Another IBM customer, Mexican bank Banorte, is targeting an improvement of 1.5-2 percentage points in its return on equity over the next 12-18 months from projects under way to deal more effectively with its customers, said Alejandro Valenzuela, chief executive officer.
“You could argue that all the financial institutions have been pushing products rather than being client-centric,” he said. The new level of data available has made it possible to look beyond old techniques of customer segmentation to market to individuals directly, Mr Valenzuela added.
For IBM, meanwhile, reaching out directly to business managers had brought its challenges. “We didn’t know how to talk to chief marketing officers,” said Craig Heyman, general manager of industry solutions at Big Blue.
It has also had to grapple with a cultural divide inside its customers that has often led to weak co-operation between executives in charge of IT and marketing, although Ms Rometty, whose background was in business services, threw herself in this early in her tenure, arranging summit meetings to bring together chief information and marketing officers.
IBM at least has some advantages as it squares up to the front office opportunity, according to analysts. The business services division founded on its acquisition a decade ago of PwC Consulting has left it well placed to sell directly to business managers.
And, unlike rival services companies such as Deloitte and Accenture, which have also set their sights on new interactive marketing services, IBM can also bring some distinctive technology advantages to bear, said Mr Little at IDC. At a customer event earlier this week in Europe, for instance, it laid out a range of cloud-based services aimed at marketing executives and other managers, including one drawing on the internally developed Watson system that has been credited with breakthroughs in natural language processing.
IBM’s other big advantage, according to Mr Andrews at Forrester, stems from its presence in the back office of many of the world’s biggest companies: integrating a company’s back- and front-office operations could give it a leg-up over others like digital marketing agencies.
How far beyond the IT department IBM is set to stray is still unclear, and its executives play down possible rivalry with advertising agencies and others. But as digital disruption spreads through the business world, Ms Rometty has clearly decided that IBM will follow it all the way.

Wednesday, June 19, 2013

Ford to make India a hub for compact SUVs

 
will make India an export hub for its compact sports utility vehicles, chief executive Alan Mulally said.
“India is a great market and is the lead edge indicator as to what people want in the world,” Mulally said on Monday. “We are going to pay more attention to this segment. You will see more products in that segment.”
Mulally was in Chennai to start production of the company’s compact SUV EcoSport at its Chennai factory, where it has invested $142 million to create a new production line that can produce as many as 10 variants of the model. The Chennai facility is one of the five plants that will produce this model, Mulally said.
Global small utility vehicle sales grew 154% between 2005 and 2012, according to IHS Automotive, a sector-specific consultancy. Ford’s small utility vehicle sales are estimated to outpace the overall industry growth, according to IHS Automotive.
Ford aims to generate 60-70% of its global sales from the Asia-Pacific region by 2020, Mulally said without giving details. “For the first time, we are making money. In the next 4-5 years, 40% of the revenues will come from Asia Pacific,” he said. 
Ford has invested a total of $2 billion to set up manufacturing facilities in Tamil Nadu and Gujarat besides an engine facility in Gujarat.
Ford needs to introduce models more frequently in India, according to an industry consultant, who declined to be named as Ford is one of his clients.
“Look at what happened with Figo. They gained the momentum but could not sustain it. Their next product in the market (Fiesta) is overpriced and EcoSport is taking its own sweet time to hit the roads,” he said. “In a market like India, you need to bring in products at a regular interval to keep the buyers interested in your brand.”
Mullaly said the Ford management will focus more attention on India.
“Some six years ago, we realized that there has not been a focus on India but now we are serious about not only India but about the region,” he said. The Asia Pacific region contributes 3% of Ford’s global sales.
Ford has long-term interests in the Indian market and the current slowdown in the market is just a temporary phase, he said.
“The slowdown will not come in the way of our commitment to India or the Asia-Pacific. We look at the long-term and in the long term, nothing is going to come in the way of economic development in the world and in India. That is our point of view,” he said.
Mulally also said that he is pleased with the way Tata Motors Ltd has handled the Jaguar and Land Rover (JLR) brands, which was once owned by Ford.
“We are very pleased that Tata purchased JLR. The decision of selling those brands were in the context that how would the new Ford look like,” he said. “That’s when we decided to let go some of the brands and the results of those decisions are visible in Ford’s global performance today.”
After the 2008 global meltdown, Ford sold some of its luxury brands including Jaguar, Land Rover, Aston Martin and Volvo.
(Source: Mint)

Monday, June 17, 2013

JLR’s success exposes shortage in engineering skills

 
 
Two years ago the West Midlands economy was celebrating one of its biggest investment coups when Jaguar Land Rover announced plans for a £350m engine plant near Wolverhampton, promising valuable work for 150 of the region’s automotive suppliers.
Today, talk among this group of small, often family-owned companies is not of winning orders for car components, but fear of losing their core staff to JLR.   
With recruitment under way for the soon-to-be completed plant, skilled engineers are being lured away by the offer of higher salaries and the prestige of working for a renowned brand.
A surge in demand for British engineers by carmakers is exposing the chronic skills-shortage threatening the future growth of the UK supply chain, government and industry have warned, as companies such as JLR, Bentley and BMW compete with their suppliers for a dwindling pool of skills.
The rude health of the UK car manufacturing industry, led by JLR’s £2.75bn a year investment in its business, has spurred a recruitment drive for thousands of engineers, designers and technicians.
The scarcity of trained engineers is a “critical issue” that represents a “serious problem at all levels” of the automotive industry, Vince Cable, business secretary, has warned, as the recent surge in recruitment bleeds the skills pool dry.
JLR and other carmakers with factories or research centres in the UK are frequently being forced to recruit engineers from their suppliers to make up for the shortfall in available trained labour, or else rely on overseas recruitment.
“There is a massive skills gap. From apprentices, to technician level, to graduate level, to engineers . . . there are shortages across all areas,” Mr Cable told the Financial Times during a recent trip to a Midlands automotive research centre.
“The JLRs will get the people they want, that’s not the problem,” he said. “It’s the people lower down the supply chain, because they get people poached . . . they can’t keep up. That’s where the constraints are.”
The skills shortage threatens one of the government’s priorities of rebuilding the UK’s manufacturing supply chain as it looks to rebalance the economy away from reliance on financial services.
“There are a lot of practical skills missing,” said Tim Abbott, managing director of BMW in the UK, and president of the British Society of Motor Manufacturers and Traders. “We need to replenish the talent stream.”
Even a firm with the pulling power of JLR, which has rebounded strongly under Indian owners Tata Motors thanks to demand from emerging markets, is finding highly skilled workers difficult to recruit.
“The biggest challenge for our growth is all about people,” said Alan Volkaerts, operations director at JLR’s Solihull factory.
“Skills-wise, it’s a really big challenge for us as a business, one because we are growing and recruiting, and two because we are investing in new technologies.”
Mr Cable’s ministry is at the forefront of a government scramble to boost apprenticeships and employee retention schemes. However, training the next generation of engineers is not happening fast enough, or on the scale needed to bridge the gap.
Nissan recently received 900 applications for just three places offered on a UK apprenticeship scheme. “It’s more difficult to get into Nissan than to get into Oxbridge,” quipped Mr Cable.
Meanwhile, fears of a chronic shortage of skilled engineers in the UK has forced the business department to lobby the Home Office to classify foreign engineers as a trade that should be exempted from the clampdown on immigration.
Providing the labour shortage can be surmounted, JLR’s German chief officer Ralf Speth is enthusiastic about creating hubs of engineering excellence in the UK. He recently led a team of JLR executives on a tour of German cities to illustrate the huge benefits of research and development hotspots such as Aachen.
JLR’s £2.75bn annual capital expenditure budget is the UK’s largest, and the company openly recognises the skills crisis its success is exacerbating. It has rolled out a series of schemes to encourage UK students as young as nine years old to be engineers, recognising that if British skills dry up, it will be forced to look overseas to meet its needs.
“We are actively working with the government on a number of fronts,” said Tony Harper, chief engineer at JLR. “We know that if we can, it means not only that we spend the R&D here in this country, but that the benefits of that happening can then be realised through manufacturing.”
  Suppliers wary
  Jaguar Land Rover revved up its UK recruitment campaign last week, handing out postcards to delegates at a Birmingham trade fair for engineering companies, many of whom produce its components, writes John Murray Brown. The move is being eyed nervously by its supply chain.
“[Suppliers] are having to improve their terms and conditions, offer extra holidays, or pay for training,” says Rachel Eade of the Manufacturing Advisory Service, a trade body. “But you can’t just do that for the one person you fear losing. You have to do that for all your staff and that can be very expensive.”
Brandauer, a Midlands based metal pressing company, has suspended its apprentice programme after losing a key staff member to JLR.
“I’d put seven years into training this person and didn’t get any payback,” says Dave Spears, managing director. “JLR want 1,000 engineers. Where are they going to get them from? From the SMEs, as the [big car assemblers] always have done,” he complains.
“If JLR takes from us, we’ve got to back fill from somewhere else,” says Mark Eldridge, head of business development at Cab Automotive, another JLR supplier.
“We had a guy who was approached three or four times by one of the big suppliers to JLR. They were offering him £15,000 more than we were paying him,” says Mat Powell of Barkley Plastics, which makes door handles for the Range Rover.
“But it’s a catch 22,” says Grant Adams, managing director of Sertec, which supplies JLR and has taken on 170 production staff in the past year. “We’re busy because JLR is busy. If they weren’t doing so well it would affect us. We’re under no illusions.”

Dairy producers flock to cater for China’s babies

 


Rationing in Europe. Trafficking probes in the Netherlands and New Zealand. Two-year prison terms for smugglers in Hong Kong. Calls for international aid.
China’s voracious demand for foreign-made baby milk has squeezed supplies – and created business opportunities – across the globe, and even inspired an artwork made of milk formula tins from dissident artist Ai Wei Wei.   
Demand has soared amid the fallout from China’s scandal over melamine-contaminated milk in 2008, which killed six babies and left hundreds of thousands sick. Since then, a series of food safety scandals has left Chinese distrustful of domestic produce – especially when it comes to the $12.5bn of formula they feed their offspring.
In a country with 82m children below the age of five, and where only 28 per cent of children under the age of six months are breast-fed, according to the UN, any problems in the supply chain were always going to have far-reaching effects.
Euromonitor projects that Chinese demand for formula will double over the next four years to $25bn on the back of reduced breastfeeding and a growing female workforce. By 2017, the data agency forecasts that China, the one-child policy notwithstanding, will account for half of all global sales.
Chinese dairy producers have failed to grab as much of this growth as their international peers. While the Chinese milk formula market grew 25 per cent from 2011 to 2012, sales at Mengniu, China’s biggest dairy company, fell 3.5 per cent.
Mengniu, caught up in the initial milk scare, has been restructuring in an attempt to improve its image. Last month it agreed a joint venture with Danone of France, which is already a big operator in China’s market.
Some analysts forecast further restructuring, with consolidation of midsized operators such as infant formula specialist Synutra – which has itself been ramping up capacity, most recently with plans for $118m milk-drying plant in France.
Bright Food, a state-owned food group, is offering visits to its plant to boost confidence among customers. A spokesman says: “We arranged nearly eight such plant visiting events and we found the result very positive. When the consumers walked in the factory, actually we did not need to talk too much. They themselves would observe how we collected the milk, did the inspections, packed the milk etc. The trust was rebuilt naturally afterwards.”
Some milk formula producers have tried to get around the tarnished image of domestically-produced milk powder by marketing their products as “European-style” formula.

Tears and tantrums

Parents across the world are feeling the effects of China’s surge in demand for milk formula as stores impose limits on the number of tins that customers can buy.
In Hong Kong and Macau the governments have even set up hotlines to ensure supplies to local residents.
Investment companies are also banking on baby milk. Shanghai Pengxin investment group recently bought 16 dairy farms in New Zealand for about NZ$200m. Milk from the farms will be sold to Fonterra, the New Zealand dairy co-operative which is a big supplier to China.
Not all foreign companies have been benefiting from the scramble for supplies. Mead Johnson of the US in its recently released first-quarter results reported no noticeable change in consumption in China and no sign of accelerated underlying growth.
In contrast, Danone has reported a year-on-year rise of 16.1 per cent in its global baby nutrition division.
Sancor, Argentina’s biggest dairy exporter, has started selling its infant milk formula in China via local distributors. “China has a marked deficit in these products and represents a huge opportunity . . . Argentine consumption of infant formula is only 1 per cent of that recorded in China. Hence the importance of this market,” Sancor said.
Danone in France and Milupa in Germany have both increased European production in an effort to avoid European shortages, as well as to serve the Chinese market. Danone has also been selling its Dutch-made formula online in China through a partnership with Tmall, an online retailer owned by Alibaba.
While the Chinese government has tried to calm fears about domestic milk formula, it has also lowered its import tariffs on it from 20 per cent in 2012 to 5 per cent this year.
However, Chinese consumers’ efforts to source milk from elsewhere have already created a headache for regulators overseas.
Formula imports from New Zealand are tariff-free. However, in order to maintain its regulatory system, there are strong fines for smugglers. Under New Zealand law, any infant formula, even a single tin bought at a supermarket, requires an export certificate if it is to be sent out of the country. An individual caught exporting infant formula without a certificate faces a penalty of up to $50,000.
An investigation by the Ministry for Primary Industries, which deals with food safety, and the New Zealand Customs Service estimated in September 2012 that the illegal trade of infant milk formula was worth “in excess of NZ$150m and growing”.
“MPI discovered that the majority of exporters were complying with the legal requirements and that a number were unintentionally in breach . . . One exporter is currently being investigated,” said Bill Jolly, chief assurance strategy officer at the MPI.
The country’s exports of infant formula have soared from $74.2m in 2001 to $361.7m in 2012.
In the Netherlands, where there has been a 50 per cent jump in the sales of infant formula this year, the government is conducting a similar investigation. “This will ensure it is no longer lucrative to buy up large quantities of milk powder in the Netherlands to send to China,” said Sharon Dijksma, the minister for agriculture.
While these countries conduct their investigations, the Chinese government is still grappling with the problem of Chinese parents rejecting domestic product in favour of milk formula from overseas.
The safety of infant formula, prime minister Li Keqiang said last month, “concerned the healthy growth of the next generation and concerned the happiness of millions of families and the country’s future”.
 
 
Western Europe’s car market will stay in reverse gear this year and next and will not begin to grow until at least 2019, according to a new report, raising the spectre of further plant closures across the continent as car use levels sink.
Car sales in western Europe are forecast to fall to 12m in 2014, from 13.2m last year, AlixPartners will say in a report released on Monday, and remain flat until the end of the decade, as unemployment, reduced spending power and negative consumer trends keep deliveries in the doldrums. 
 “Flat is the new up,” said Stefano Aversa, co-president of AlixPartners. “The good news is that the decline will stop but the bad news is that it will not get better anytime soon.”
Annual car sales in western Europe have fallen by almost a quarter since 2007, as economic growth on the continent stagnated after the global financial crisis, and rising unemployment and falling consumer spending power turned people away from showrooms.
Continued pain in France, Italy and Spain in particular will smother isolated bright spots such as the UK, the new research shows, while slow but steady growth in central and eastern European markets will mean overall sales across the wider continent inch above pre-crisis levels by 2019.
A shift away from driving among older Europeans, falling interest in ownership among the young and more durable cars were cited as major consumer trends harming car demand in the report.
“We see a continuing reduction or bottoming out this year,” Andy Palmer, executive vice-president of Nissan, told the Financial Times regarding the European market. “There is nothing obvious we see to say that a recovery is on the way.”
Peugeot, Ford and General Motors have announced they will close five European factories between them by 2016 in an attempt to stem a sustained fall in factory utilisation levels across the continent, but further cuts to capacity appear inevitable if sales show no sign of increasing.
By 2019, Europe will need to further cut its total capacity by more than 2m vehicles to reach a sustainable utilisation level, according to AlixPartners estimates, with Spain having an excess capacity of almost 670,000 vehicles by the end of the decade.
Only 42 of Europe’s 100 largest car factories will be operating at more than 75 per cent capacity this year, down from 60 in 2011, the report says.
Utilisation is forecast to be lowest in Italy, with just 46 per cent of the country’s potential carmaking capacity being used.