Clouds have come ... can the rains be far behind - Part 4

There are clouds.. still not dark enough -  looks like it may take some more days before it rains..

Location - BKC

Date - May 31, 2010

Cars and software bugs

An interesting info on the errors/bugs in s/w from an article in Economist.

"... In industry generally, programs written for internal use are reckoned to have error rates of anything from five to 50 bugs per 1,000 lines, depending on the programming language adopted; the use to which the software is to be put; and the amount of time the manufacturer can afford to invest, given the price the customer is willing to pay. ... a program like Microsoft’s venerable Windows XP—which had 40m lines of code—would have contained at least 20,000 bugs when launched. ... In industry generally, programs written for internal use are reckoned to have error rates of anything from five to 50 bugs per 1,000 lines, depending on the programming language adopted; the use to which the software is to be put; and the amount of time the manufacturer can afford to invest, given the price the customer is willing to pay. .."

Traffic and the GPS

In Oct 2008 I came across a news report that a Polish driver who was too sure of his GPS road navigation device ended up neck-deep in a lake after ignoring road signs warning of a dead-end ahead.  Within a few days after this incident, I was deeply worried when the Business Line reported that HCL Infosystems has bagged an order from Delhi Police to enable the police force to access automated information. The company said it has modernised the police control room which consists of multimedia contact centre, and has the ability to track all PCR vans fitted with GPS devices and to coordinate their movements. Fortunately, there is no adverse news on the GPS matter.  

I was reminded of the Oct 2008 news item, when I recently came across an interesting article in Economist.  Some excerpts from the article:

"Mummy, what are you shouting at?" my three-year-old asks from the back seat of the car. "I'm shouting at the computer—it's taking us the wrong way again", I reply. My son and I are escaping to the Peak district for the weekend with only a TomTom GPS to help us find our way. We should be heading north, but for some reason the GPS doesn't want to go that way. I watch in goggle-eyed disbelief as we sail past the exit to the M1, the main trunk road north of London and head straight into the busy orbital route around town. "This is the rush hour", I shout, "are you crazy?" Moments later we squeal to a halt. My confidence in the shiny new GPS is starting to ebb away..

.. As I drum my fingers on the driving wheel and stare at the rear end of a car, the GPS machine announces it has found faster route (no kidding!) and we turn off and head back to the M1. "Ha! I told you so" I tell the machine. But my triumph is short-lived. A short distance up the M1 and the GPS announces we are turning off and heading to St Albans, which is entirely the wrong direction...

In a lighter vein, it appears that there is not much of an improvement in the GPS world between 2008 and 2010.

A humble request

Received this request by mail.  Though it was a chain mail, as the contents were good we have implemented it in our flat.

It's not easy, being different

A few days back, I accidentally ended up watching "Chocolat".  Overall, a light film about a young mother who arrives at a new village with her young daughter and opens a small chocolate shop.  The film details how slowly she begins to impact / change the lives of people around her.  Initially, there is resistance from the Mayor (& society), but ultimately she wins the affection of the people.

Towards the end, when the priest gives up and says -

Listen, here's what I think. I think that we can't go around... measuring our goodness by what we don't do. By what we deny ourselves, what we resist, and who we exclude. I think... we've got to measure goodness by what we *embrace*, what we create... and who we include ...

... I remembered about the happenings in olden days when people got excluded - layer upon layer - kind of structure etc. I also remembered Sairam and his extra-ordinary love for his devotees (HE calls them "little sparrows" whom HE pulls to Shirdi) - no exclusion - only inclusion...

When the Mother says - "..it's not easy, being different" and the little daughter asks her Mom - ".. why can't you wear black shoes like the other mothers..", I instantly recollected the discussion (about stereotypes) in a recent training programme which I underwent.  The power of society to enforce conformity to societal norms, is intense.  Not all can withstand the pressure. 

Even in organisations, there is intense pressure to conform - "this is our way of doing the work" or "this isn't the way we do things here". Somehow, I could never reconcile to blindly doing something just because someone has done it in the past - a periodical examination of the circumstances / background / work / process etc, can possibly throw interesting ideas and new ways to do work in a more effective way.  

 

I should admit that over the years, my power to experiment (and take risks) have gone down.  Now, I am comfortable, with even incremental changes, that come after a thorough study of pros and cons. 

The sarpanch has an idea

This week, I enjoyed reading this short article from Economist - "The sarpanch has an idea".  Liked the article and left a comment on the site - though in hindsight I feel I should have modified it a bit ().  

The IDEA ads are good - I will say that I like some of their ads.  In a sense, we can also call them innovative.  But I am not sure if everyone would like the IDEA ads. The only difference is that it is using social issues to sell its offerings.

 

The large scale growth in use of mobile phones have helped the lower strata of the society. There are studies which explain the economic benefits that have arisen out of the use of mobile phones. There is an interesting research article titled "Mobile Phones and Economic Development: Evidence From the Fishing Industry in India" (By Reuben Abraham, Director, ISB School of Business).

Whether it is 545 million cell phones or somewhat lesser number of people having more than 1 SIM card etc the fact is that it has grown to a large number and by removing information asymmetry it has improved the economic situation for the fishing community. To that extent, it has contributed positively. 

More importantly, in a country like India with a significant illiterate population which cannot read and write, mobile phones help in breaking barriers - as everyone can "speak". Thus, it aids in the communication process and helps the lower strata in their livelihood issues.

Clouds have come ... can the rains be far behind - Part 3

Some more photos taken from mobile (around 1.30 pm) on May 27, 2010.  But the clouds are not as dark as the ones seen in the morning.

Clouds have come ... can the rains be far behind - Part 2

Some more photos taken from mobile (around 1.30 pm) on May 27, 2010.  But the clouds are not as dark as the ones seen in the morning.

Clouds have come ... can the rains be far behind - Part 1

Atlast clouds are gathering... It should only be a matter of days - the rains will come and the heat will reduce.  Photos taken around 8.15 am on May 27, 2010 from our balcony using a mobile.

NIIT - -> Beard + Sharp nose = Top management ?

Two photos of NIIT's top management caught my attention recently and both of them appeared in Business Line newspaper. The first one appeared on May 6, 2010 when NIIT Tech's Q4 results were covered.  (Source: NIIT Tech Q4 profit rises 57% on lower taxes, high margin deals, Business Line, Thursday, May 06, 2010). See photo below:

Eyeing Govt deals:(from right) The CEO of NIIT Technologies, Mr Arvind Thakur; the Chairman and Managing Director, Mr Rajendra S Pawar; and the CFO, Mr. K.T.S. Anand, at a press conference in the Capital on Wednesday.  

The second one appeared on May 8, 2010 when NIIT Ltd's Q4 results were covered (Source: NIIT Q4 profit rises 40% on higher margins from IP-based revenue, Business Line, May 8, 2010).  See photo below:  

 Report card: The NIIT Ltd Chairman, Mr Rajendra S. Pawar, flanked by the CEO, Mr Vijay K. Thadani (left), and the COO, Mr P. Rajendran, announcing the annual results of the company in the Capital on Frday. - Kamal Narang 

Observation: 

All the top people have sharp nose & have grown beards!  Is it just a coincidence?

Venture capitalists are licking their wounds—and their lips

VC funds invest with a longer term investment horizon and returns to their limited partners (LPs) are not possible unless they exit from their investments.  Attractive returns serve as incentives to the LPs to contribute to future funds floated by VC firms.  While India has never seen more than 20 VC exits in a year - in the first three months of 2010 alone, there have been 10 VC exits (against 3 last year) and analysts see at least 50 exits in the next six-nine months reports Mint.  Attractive exits through IPOs would help establish India as an investment destination for VC / PE funds and the trend in both US and India appear similar with many VC / PE firms waiting to exit and the market also supporting IPOs of VC / PE funded companies.  Highlighting the US scenerio, The Economist reports:

In the first quarter of the year there were almost as many IPOs of venture-backed firms as in all of 2009 (see chart). At the end of March another 43 venture-funded businesses had registered with America’s Securities & Exchange Commission to go public. Encouraging stuff, though some fret that any hiccup in equity markets could scupper these plans.

Source:  The Economist

In the US, while the tough fund-raising environment is forcing more and more VC firms to close down their activities, Steven Kaplan of the University of Chicago’s Booth School of Business and Josh Lerner of Harvard Business School in a recent paper entitled “It Ain’t Broke: The Past, Present and Future of Venture Capital”, point out that VC funds raised when capital is scarce have outperformed those put together when VC firms were flush with cash. Looking at the increase in valuation, VC firms with money to invest, worry about how to get into deals while the rest worry about exiting from the investments already made before the markets tank again.

Policymakers are experimenting with ways to stop a property boom

Almost uniformly the response of the common man in India is that the prices of residential flats have become unaffordable. Mint points out that RBI's house price index for Mumbai reached a peak of around 230 (Q2, 2008), fell to around 150 (Q4, 2008) and went beyond 250 (Q4, 2009).

Graphic: Naveen Kumar Saini/Mint

Mumbai property prices have gone up 2.5 times between 2003 and the end of 2009  even as GDP went up 2.3 times. Perhaps we get the feeling that prices have run up faster in recent times as the RBI's index moved up 50 points in four years and more than 100 points in the next two years, even as the number of transactions went up sharply since Q2, 2009.  The RBI report on macroeconomic and monetary developments says: “There has been a general upward pressure on housing prices in the recent period, which broadly co-terminates with the rise in stock prices.” 

Economic Times reports that the outlook for the commercial real estate is also optimistic. It is not as if only in India the property prices have gone up.  The Economist reports that in China house prices rose by 11.7% (in the year to March), in Canada by 17.6% and in Australia by 20% (in 8 state capitals compared with a year earlier).  In India, RBI was proactive in 2005 (atleast when compared with Western nations) when it required banks to make larger provisions against losses from property loans and forced them to set aside more capital.  Now, the substantial increase in property prices are forcing policy makers abroad to consider various options including tax on real estate that varies over the cycle (rising in property booms and falling in busts).

In western countries while market decides the allocation of resources and rates, in countries like India, central banks do engage in micro management including tinkering with the credit-allocation process, favouring some industries with credit and discriminating against others. While in normal times this would be considered as something to be avoided, in the context of the recent economic developments especially downturn seen in developed world, some of the developed countries are now following Asia’s lead. Some of the changes include:

• In Hong Kong, banks lend homebuyers no more than 70% of the value of a home.  Their exposure to the property market is also limited to 40%.
• In Singapore, banks cannot lend more than 80% of the value of a home.  There is also a stamp duty on all residential properties sold within a year of purchase. 
• China proposes to increase downpayment requirements on second and third homes, as well as big first homes. It has also set a floor on mortgage rates.    
• In Canada buyers have to make downpayment of atleast 20% on investment properties they do not occupy themselves.

While policy makers hope these would curtail the run away increase in property prices, the fact is that prices of flats have gone out of reach of the common man. With loose money policy being followed across globe, the flow of money into countries like India would continue and with PE players funding property development, the capacity of the developers to hold on to prices have also increased.  With RBI allowing reschedulement of loans during the downturn, there is no urgency on the part of property developers to sell / dispose off inventory.  Looks like the prices are not likely to come down in a hurry and the common man has to wait.

PE Investors push for more favourable fees and terms, and get them

CalPERS persuaded Apollo Global Management, a large PE firm, to scrap $125m in fees over five years reports The Economist.  Highlights from the article:

• CalPERS plans to bargain aggressively with other PE firms (known as “general partners”) to bring down fees and has urged other investors (“limited partners”) to do the same.

• Institutional Limited Partners Association (ILPA), a network of institutional investors in PE, issued a set of best practices that general partners should consider accepting if they want limited partners’ business.

• ILPA calls for greater transparency, more favourable contractual terms and more generous profit-sharing. 

• PE firms have typically charged investors a 2% management fee, which is intended to cover the basic costs of running their business. Limited partners insist that management fees shouldn’t be a source of profit for general partners, and in some cases are demanding to sit down with them to find out what their real costs are. 

Overall, it is an interesting development that is bound to strengthen the hands of the limited partners.  Some of these, like lower management fees etc have started happening in India too.   It would be better if there are some regulatory guidelines, more specially insisting on a decent level of paid-up capital for the general partner (hopefully this would avoid the temptation to make more money out of management fee) and some form a link/correlation between actual expense and management fee.  The intention should be to align the interests of the GP with the LP.  If VC/PE business aims at long term capital appreciation, then the GP should also aim to make long term money (along-with the LP) instead of higher annual management fee which is delinked from actual expenses at the ground level.

In a world of ugly currencies, the dollar is sitting pretty

Are there any beautiful currencies left, asks The Economist, even as it answers back - Australian dollar and the Canadian dollar, South Korean won and Brazil’s real. The trouble is lack of scale and liquidity which limits their role as reserve currencies. Overall an interesting article - getting the right answer is difficult.

• JOHN MAYNARD KEYNES once likened investing to judging a beauty contest. For today’s currency investor, however, none of the main contestants looks that fetching. “It’s more like an ugliness contest,” says one hedge-fund manager.
  
• The dollar, for all its blemishes, is the least hideous-looking. So far this year it has risen against the other main currencies (the yen, pound and euro) that are traded internationally and held as reserves by central banks.
  
• The pressure to tighten fiscal policy in some parts of the euro area will make it hard for the European Central Bank to even consider raising interest rates. A weaker euro also addresses the deeper cause of the present crisis: a lack of export competitiveness in the south of the currency zone.

With the American growth story not fool-proof and Euro zone going through its own difficult phase, it is difficult to state which currency will end up as reserve currency in the future, more so with China not allowing its currency to appreciate.

The Beijing consensus is to keep quiet

An interesting analysis from The Economist on The China Model.

• Scholars and officials in China itself, however, are divided over whether there is a China model (or “Beijing consensus” as it was dubbed in 2004 by Joshua Cooper Ramo, an American consultant, playing on the idea of a declining “Washington consensus”), and if so what the model is and whether it is wise to talk about it. The Communist Party is diffident about laying claim to any development model that other countries might copy.
  
• Western publishers have been no less enthused by China’s continued rapid growth. The most recent entry in the field is “The Beijing Consensus, How China’s Authoritarian Model Will Dominate the Twenty-First Century” by Stefan Halper, an American academic. Mr Halper, who has served as an official in various Republican administrations, argues that “just as globalisation is shrinking the world, China is shrinking the West” by quietly limiting the projection of its values.
  
• But despite China’s status as “the world’s largest billboard advertisement for the new alternative” of going capitalist and staying autocratic, Party leaders are, as Mr Halper describes it, gripped by a fear of losing control and of China descending into chaos. It is this fear, he says, that is a driving force behind China’s worrying external behaviour.
  
• Party rule, the argument runs, depends on economic growth, which in turn depends on resources supplied by unsavoury countries.
  
• Politicians in Africa in fact rarely talk about following a “Beijing consensus”. But they love the flow of aid from China that comes without Western lectures about governance and human rights.

Chinese don't talk. Their actions speak. No wonder China has grown unimaginably over the past 3 decades. But this has come at the cost of democracy, freedom of speech, liberty etc. We too had our share of emergency/dictatorship in the 1970s but we have realised that it can't succeed in a liberal/free country like India.

The Indian spirit can never be shackled. It loves freedom and we have sacrificed growth so that we can hold on to values which we cherish, even if we have imperfections in our model, which we are trying to rectify. We are slow, but we will grow. Our steps will be sure, without the fear of sudden collapse which is normally associated with dictatorial regimes. Being a democratic country, we are a open society - we learn and we are not afraid to share our learnings with the world. In other words, our consensus is to share and not have a secretive / security obsessed culture.

China is governed by real politik while India is even today a believer in idealism. I am not belitting the achievement of China and the Chinese people - it is remarkable by any standard - but it has come at a cost which free countries like India can ill-afford. Today, if the Beijing consensus is to keep quiet, it is out of fear - a sense of insecurity - what if other countries try to do what China has done or is currently doing and what will be its effect on China and its growth path.

French companies get serious about putting women in the boardroom

MOST French bosses have little time for a new law, now going through parliament, which would compel listed companies to lift the proportion of women on their boards to 40% by 2016, says this interesting article from The Economist. With the French government determined to make France the second country with a compulsory quota for women in the boardroom, I was reminded of the Women's Reservation Bill in India and how Indian politicians "manage" such reservations.

• In private, chief executives say they will look for female board members of a particular type: those who will look decorative and not rock the boat.
  
• One boss asked a headhunter for photographs of candidates and said he would treat looks as his first criterion, ahead of industry experience.
  
• A board member of a multinational company who opposes the 40% quota said that bosses could simply appoint their wives or—more subtly—their girlfriends.
  
• In March Dassault Aviation, a manufacturer of fighter planes and corporate jets, said it would nominate Nicole Dassault, the 79-year-old wife of Serge Dassault, its controlling shareholder, to its board. Mrs Dassault has little hands-on business experience.
  
• LVMH has nominated Bernadette Chirac, the 76-year-old wife of the former French president. Mrs Chirac’s qualifications, explained the company, were that she was female and that as first lady she supported fashion and regularly attended catwalk shows.
  

Enacting law is the first step. But how to ensure it is not abused? In India, we have wife(s)/mother etc who hold the fort (for the family!). In France we have a (a) 79 year old woman appointed with no business experience (b) a 76 year old woman appointed because she was a female and she attended "catwalk shows". One boss says "looks would be the first criteria" while another board member says bosses could simply appoint their wives or—more subtly—their girlfriends!

Did any Indian politician go to France to educate the developed world?

What has Apple got against eastern Europe?

Why doesn’t Apple, a company so irritatingly up to date in its products and marketing, update its worldview when it comes to sales, asks The Economist in this interesting article "Cupertino's cold warrior"

Clearly the size of the market is not the determinant. China and Russia don’t appear, but Luxembourg does. It is not about prosperity: Iceland—which, believe it or not, is still one of the richer countries in the world—is out, whereas Vietnam is in. Political freedom or the rule of law are not the binding factors. The Philippines and Thailand are on the list, whereas impeccable democracies such as Slovenia are not. ... the list comes from a company that prides itself on being an icon of über-cool internationalism, with a post-modern disdain for clunky convention and tiresome rules. It is from the Apple Store, ... But some are more equal than others. Visitors from Finland, for example, are presented with a full array of music. But register with an address in Estonia, just half an hour away by plane, and you get only a list, admittedly rich, of games, gimmicks and lectures. Films and music are out of bounds. ... Why doesn’t Apple, a company so irritatingly up to date in its products and marketing, update its worldview when it comes to sales? Apple’s global headquarters did not respond to a request for comment. A spokeswoman in Britain promised to investigate. When we get an answer, we’ll post it here.

Let us await Apple's response.

It doesn't add up...

Neither Labour or Libdems want big deficit cuts now and indeed tend to favour tax rises on the wealthy, something the markets won't like. The anti-austerity parties will have around 344 seats while the Tories, the only party which might try to slash the deficit immediately, will have just 306. The UK election outcome is not stable, will probably lead to another election and is unlikely to deliver the kind of fiscal package the markets want, says Buttonwood in "Just do the maths" (The Economist). While deficit reduction might be welcome news for the market, I guess the common fear may be as to how the reduction is going to be achieved? Is it by way of higher taxes or reduced expenditure or both? I guess reaction of people would at the end depend upon how they are going to be impacted by government's decision.

The risk-free rate and corporate finance

In corporate finance theory, the risk-free rate (that paid by governments) is the basis for pricing other assets, which must pay a risk premium on top of that. But what happens when the government, like Greece, has little hope of repaying its debts at market rates, asks Buttonwood in this interesting blog post.