Desicritics Category: BizTech: Companies

CFO or CEO: Who Influences Earnings Management More?

Dr Bhaskar Dasgupta — Sat, 20 Mar 2010 11:01:53 EDT

Well, the previous idea was that earnings management was primarily driven by the CEO and therefore regulators around the world asked for the remuneration details of the CEO. But recently the SEC has started asking about the remuneration of the CFO as well, which in hindsight, makes perfect sense. After all, the CFO is the person who is actually managing the entire financial process which culminates in the production and propagation of the financial and earnings figures and announcement. A recent paper sheds some more light on this rather interesting and topical issue.

The authors cover the S&P 1500 firms for which CEO and CFO compensation data is available over the 1993 to 2006 period giving a total of 17542 firm years. They judge both cash pay and total pay, the latter including everything else such as option grants, incentive plans, etc. On an average, the CFO earns 1/3 of the CEO with an average equity incentive ratio of 11% for CFO’s compared to 24% for CEOs. Please bear in mind that 2002 saw the introduction of SOXA and the authors do include the impact of this on accounting treatments such as accruals management.

Prior to the introduction of SOXA, there is a positive association between the compensation of both CEO’s and CFO’s with accruals management. In other words, more the incentive, more are the accruals within the financial statements and the influence of the CFO is higher on the accruals management element compared to the CEO. The introduction of SOXA meant that active accruals management was dramatically reduced and there is no longer any relationship between the incentives to CFO and CEO and accrual management.

How about beating analyst forecasts? As you would know, analyst forecasts are extremely important in forming the market sentiments which drive how the market reacts post the earnings announcements. Similar to the above finding, the authors find that pre SOXA, CEO and CFO incentives are positively associated with the likelihood of reporting positive earnings surprises. They also find that greater the incentive, greater was the chance of an earnings surprise. In the post SOXA period, the equity incentives of the CEO is no longer positively associated with the likelihood of beating analyst forecasts. But surprisingly, the CFO is still highly influential in the likelihood of beating analyst forecasts.

The authors also carry out some additional tests and find:

We also find some weak evidence that earnings management incentives are strongest when the manager has compensation that is more sensitive to stock prices and the firm’s stock returns are more sensitive to accounting earnings.

In other words, the role played by the CFO is almost independent of the CEO at least in terms of accrual management, earnings management and general financial statements to the wider world. If I was a shareholder, I would peer at the CFO much more closely and if there is an element of equity incentive compensation to the CFO, then peer even more closely with a beady eye. I can see analyst models start to incorporate this as a factor. On the flip side, I am sure the CFO’s will be reading this and demanding more cash based compensation compared to stock based compensation. Not sure what the answer is, but it puts further pressure on the remuneration committee, the audit committee, the external auditors and regulators to make sure that the firms are presenting a true and fair picture of the accounts.

John(Xuefeng) Jiang,Kathy R.Petroni and Isabel Yanyan Wang, CFOs and CEOs:Who has the most influence on earnings management?, Journal of Financial Economics, doi:10.1016/j.jfineco.2010.02.007

Tag me a Price

Halima Khan — Thu, 18 Mar 2010 08:04:12 EDT

Nothing in life comes without a price attached to it not even life itself. Does anyone beg to differ? Then I suggest you need to go check with your parents how much giving you life cost them. However, I am doubtful if you are interested in that so here are some tags, which might be more relevant to your existence:

The first in this category has to be phone connections, from luxury, they have become a much desired and sought out need. In the last few years, we have become lucky with choices; from pink and blue Telenor tawk shawk to red Jazz to bright orange and green Ufone there is also the blue and white Zong. The telecommunication has become so increasingly aggressive recently that other than pricing strategy they have to be very creative with marketing too. Well no one is complaining about that for sure; after all, it is a delight to get to see ‘bootilicious’ models dancing to irritatingly catchy tunes.

The sim cards are widely available now and at affordable rates too. It does not come as a surprise that everyone has to have two or even three nowadays, especially with dual sim phone sets gaining popularity. Nonetheless, it is major good news that governments finally realized its responsibility and the NIC copy as a requirement to issue sims is being strictly followed. The standard sim rate has been 500 with either free credit or talk time or a limited number of sms or all three in some cases. The summers wavered the sim prices for instance Warid sims are available at Rs.150 only. Ufone is giving three sim options, two are priced at Rs.130 only, and one costs Rs.150 only. Zong is the only phone company offering a phone set and a sim combo deal under Rs.2000 only. However, no need to rush this offer is valid for limited period which doesn’t end.

Prepaid service gives us ample choice in selecting the billing system that suits our calling requirements. There is the one-second billing, the thirty seconds billing, and the regular one-minute billing. In addition, there is also per hour billing packages with all services charging approximately Rs. 5 per hour. However, most of these low call rates apply to the same network calls. This trend has changed recently with phone services becoming more consumers’ friendly than ever.

Phone is not just a communication gadget anymore it is a whole entertainment parcel. Voice quality and connectivity is very important for cellular service providers, but to keep pace in this cutthroat competition value added services are of keen significance as well. Mobile TV, radio, web browsing, chatting, song dedication, quizzes, games, competitions, lucky draws and so on and so forth. Viola, your very own Pandora box!

Be it lovers sighing their nights away or friends trying to catch up on lost time or socialites sniffing for the up and happening or employees trying to do their job cellular services have definitely proved bigger blessing than nuisance. Moreover, it is a relief to see this blessing becoming progressively more affordable.

At the end of the day it hardly matters what code proceeds your number till you have a mobile set in your hand to flash in people’s faces especially if you have a pair of car keys dangling in your other hand. Yes the ultimate dream that every prestigious member of ever generation thinks obligatory to pursue, and thank God, for economies of scale that it is not a too far off possibility. There is no limit to how much you can spend on shoes and bags, agreed? Unanimously, of course! Conversely, I insist there is no limit to how extravagant you can get with your car too. Sky is the limit with how luxurious technology can make your four-wheelers.

Honda is a beauty but undisputedly it is the most unaffordable beauty in the market especially for just starting-off youngsters. The Accord 2.4 I-VTEC is quoted at Rs. 3,599,000.00; there is no way in heaven or hell that I am adding only to that figure. That one is for recommending to your daddy especially if he can afford the ever-rising petrol prices. If you plan to pursue this extravaganza, you had better hurry since ‘the unit price is subject to change without notice & at the discretion of Honda Atlas Cars (Pakistan) Limited.’ Though I am sure the helpful salesperson will remind you that the price prevailing at the time delivery of the vehicle will be charged. The luckiest you can get at Honda showroom is at Rs. 985,000.00 and you just bought yourself a City (manual transmission).

The new Corolla that hit the market just this year has four models including Altis1.8 VVTI (AT) and 2OD Saloon diesels, all four supporting sunroof, and they fall between Rs. 1,600,000 and Rs. 1,800,000. Toyota has fairer economical cars to its credit as well; there is Cuore available between Rs. 400,000 and Rs. 500,000 only depending on which color and model you pick.

Suzuki is not far behind in sales and car quality. There is the good old Mehran, even though it’s a little old fashioned it’s as reliable as ever. Then there is also the Cultus, which goes slightly higher but is in keeping with evolving trends. It costs around Rs. 700,000 only. Alto is available at an affordable Rs. 500,000 approximately. Even the slightly luxurious Liana is priced averagely at Rs. 900,000 only. The sporty jeep is the Suzuki car to cross the Rs. 1, 000,000 mark and that too only slightly.

Most banks offer leasing opportunity nowadays at fairly easier terms, if none of the above fit your budget.

Whichever models of whichever brand you end up buying its essential to remember, that with great power of that key comes great responsibility. Being careful on the road is part of your civic sense just as carefully taking care of your car’s maintenance is. This is not just for your safety but also for everyone else’s. Like every other product, the handbook that comes with it is important. Go through the warranty manual and fully understand your consumer rights to avail the after sale services to your best advantage.

Oh a point of information please morally all cars should come without horns.

Well by now, we have painted the picture with the mobile and a set of car keys but it’s not complete yet now is it? To be perfectly equipped for survival in this current age plastic money has become an important ingredient, cannot stress the importance enough so I will move on to what alternatives are available in the ‘sabzi mandi’. International banks have long realized how fruitful Pakistan is as a potentially very ripe sales base. The security threats are nothing compared to how rewarding the gullibility of people here can be. No offence in being an easy prey is there.

ABN now known as the Royal Bank of Scotland has been in the market for quite some time now. They are the only ones co branding their credit cards. There is the collaboration with Air blue which gets you free air travel when you mange to reach required reward points. Then there are also Ufone benefits of free talk time and line rent. HSBC has the standard silver, gold, and platinum credit cards. However the major incentive that using their card has is the more you use it in your shopping, traveling etc the more the bank saves for your child’s education. That is definitely a tempting reward point system. MCB bends more towards the debit card options so you get to spend only what you have. Hardly any fun eh! HBL follows the market trend with the green card and the gold card. The credit card acquiring process has no doubt simplified a great deal and the terms are more convenient with greater stress on wider opportunities for its users.

Most banks share the benefits they offer; also, there are more or less standard features. Even the credit card membership fees are as good as same with the option being Rs.2000/- and Rs.4000/-. However, the Platinum Card fee ranges from Rs. 5000/- to Rs.15, 000/- depending on what limit the bank has assigned you. The fringe benefits on credit cards are more or less regular as well with insurance given especially on travel and with discounts offered with redemption partners.

With wants and needs switching sides, fast price tags have taken a relative connotation; only you can decide what your budget accommodates. Nevertheless, there is definitely something for everyone now. Happy affording!

Propaganda, Patriotism and Profits

Ruchi — Sat, 27 Feb 2010 02:28:07 EST

I was in a small village in Rajasthan on January 26, the Indian Republic Day. Children ran through the village shouting in chorus, “Mahatma Gandhi ki jai, mera bharat mahan” and the like. These are children who will see little opportunity in their life; barring exceptions, each will spend his life as unskilled labor, marginalized and exploited in a globalizing India. Yet they ran, loudly, overtly, persistently patriotic.

On a talk show on Maoism, the wife of the slain cop, Francis Induvar emphatically claimed that her husband’s blood bled for the nation and she will be proud if her son too joined the police. Newspapers regularly carry obituaries and reports of jawans killed in combat, the odd blast – the death in “service of the nation” bestowing martyrdom on them.

That the State is separate from the people is a given. That the state will work in the interests of the people is not. In fact, often, the converse is. Therefore overt patriotism is a poor and middleclass virtue because unquestioning allegiance is convenient: to maintain peace and an appearance of order and frame paucity of options as considered sacrifice for the good of the country.

Patriotism is not innate, but inculcated and institutionalized by the State. Inculcated through dogmatic education and embedded through whimsical handouts to indoctrinate the poor to see the State (and its actors) as benefactors. Corrupt incompetent buffoons are repeatedly elected because they are framed as patrons and not accountable representatives. It’s significant that in a patriarchal society, Gandhi is revered as bapu and Nehru as chacha, thus killing all avenues to question their decisions. Every aspect of the poor person’s life is circumscribed by some state handout. Grain is distributed in fitful spurts from a dysfunctional PDS, eligibility for which is summarily given or retracted. Education and health from dysfunctional state infrastructure is delivered with disdain. Further, the right to work comes with the Mahatama Gandhi moniker. Roads come at the behest of Pradhan Mantri Gram Sadak Yojana. House to live in as Indira Gandhi Avas Yojana. The local MLAs and MPs spend tax monies but litter their constituencies with their name markers.

Patriotism means love and devotion for one’s country. Yet how does one define a nation, when the concept is reshaped as soon as borders are redrawn? Pakistan and Bangladesh were originally part of India but their “otherness” now is unquestioned and the accepted account is that one is exporting terrorism and the other illegal immigrants to India. Scores of our first-line soldiers die unaccounted deaths, their death framed as martyrdom in shallow consolation. But whose beliefs are our soldiers defending? Enlistment in first-line combat positions is overwhelmingly an outcome of complete paucity of employment opportunities not the courage of conviction. What does conviction even mean in the context of an army? Even if individual wars have clear aggressor and aggrieved parties, what about the battles within and individual bullets exchanged? What when the US/UK pressure us to deploy forces in Iraq, the UN for “peacekeeping”? What about when we pit these cadets against our own people? Often the bullets and blows exchanged are not defending the sovereign concept of a nation or even a principle, but pitting the poor against the poor.

If earlier the State used patriotic fervor as an administrative tactic, big business is now co-opting national consciousness for private profit. Patriotism is love for the collective, an all-embracing identity and hence a unifying force. A patriotic populace is submissive, servile and now conveniently unified in a single market. With one stroke in 1991, the entire country unasked became a single unified market for global companies.

American consumer-products giant, P&G is envisaging ambitious growth based in part, by expanding into the Indian rural markets, a strategy mirrored by virtually all consumer-goods companies now that they’ve saturated the urban markets. Our obsession with cricket is now a private industry with global players. Sports and entertainment are moving from participative recreation to centralized consumption, all in the guise of Brand India. That SRK should choose anti-Muslim sentiment in the context of post 9/11 America and not the homegrown examples of the Muslim pogrom in Mumbai/Gujarat is an example of exploiting national identity for business profit. The Islamic identity in the former is fused with the Indian identity keeping intact the entire country’s potential as a market whereas domestic examples will inconveniently divide the national market, that too with the majority Hindu market on the wrong side of the marketing device.

Meanwhile, the rich and powerful are unencumbered by patriotism, having already graduated to becoming “world citizens”. They claim pride in their Indian identity but go about their business with distance, protection and right of way from their own people. The Indian identity is parlayed into a prerogative to direct and exploit national resources and expand sphere of influence outside of national boundaries. In a country riven by class inequities and appalling human development indicators, the poor cannot harness the collective strength of the country. Patriotism then is a bottoms-up centralizing force, used to subsume economically weaker class interests by more powerful state interests, and in neoliberal India by corporate interests.
Kennedy stirringly said, “ask not what your country can do for you; ask what you can do for your country”. He was wrong – a citizen’s right to state accountability takes precedence over the state’s demand for allegiance.

The Children of India: A Volunteer Travel Experience

Shelley Seale — Tue, 23 Feb 2010 11:36:36 EST

The idea of volunteering in another country has long been considered the province of students and recent graduates; images of intrepid twenty-year-old Peace Corps workers in a remote Sierra Leone village might spring to mind. Today, however, the idea has reached far beyond that to become accessible, and highly popular, among travelers of all types and ages.

Even the Peace Corps itself has changed dramatically – from an average age of 24 in its beginning in the 1960s, to 28 as of 2002. Many early retirees and those seeking mid-life career changes are joining up – the oldest Peace Corps Volunteer ever was 86 when he completed his service. Volunteer travel has grown so popular that a term has even been coined for it: Voluntourism.

Companies and websites specializing in voluntourism have sprung up by the hundreds, and volunteer vacations can be found in all parts of the world, doing all kinds of activities – from digging wells for clean water in South America, to working with children living in orphanages. It was this last type of volunteer vacation that hooked me. In 2004, I became involved with a nonprofit based in Austin called The Miracle Foundation, which manages orphanages in India and recruits sponsors and donors to support the children living there. By 2005, I was traveling to India myself, to volunteer in the orphanage.

The children are everywhere in India. They fill the railway stations, the cities, the shanty villages. Some scrounge through trash for newspapers, rags or anything they can sell at traffic intersections. Others, often as young as two or three years old, beg. Many are homeless, overflowing the orphanages and other institutional homes to live on the streets. I had no way of knowing just how much they would change my life.

India was everything I had imagined it would be – only more so. More colors and smells, more noises and people, more everything. It was an assault on all the senses at once. The cacophony that greeted me was jarring after the peaceful countryside I had gazed down on from the airplane. There seemed no still or quiet space. Instead there were throngs of people everywhere, living and working and sleeping; hundreds of street vendors lined every available inch of sidewalk, while mangy dogs and cows nosed at piles of trash around them.

Rickshaw drivers pedaled through traffic alongside schoolgirls with their braided hair and backpacks. The smell of curry and incense hung thick in the air along with soft chanting from nearby temples. The dusty roads peppered with potholes were filled with a constant stream of buses, bicycles, rickshaws, cars and cows and rising over it all was the constant, blaring beep-beep of the horns. It was the most alive place I had ever been. India is too big to describe adequately, too big perhaps to absorb in a single lifetime. The country simply wrapped itself around me and refused to let go.

There was also what everyone, including myself, expected of India – despair, filth, destitution. The trash that lined the roads and the beggars that tapped at car windows. The deteriorating buildings, the ragged street hawkers, the shanty village along the river banks. The frantic poverty that would not let me rest.

At home, these things are hidden neatly away as much as it is possible to do so. But in India, everything is in full view; nothing is hidden. Its rawness of life strips away the unnecessary - distractions, superficial attachments, trivial worries. Without this safety net life becomes fundamental, only the essentials of being, and causes you to be fully present in your own existence. You become lost, in order to find.

And even still, there was beauty in the midst of it. The vitality of life teeming all around, the jangling of bangles and ankle bracelets, the colorful saris, the carved temples with swaying trees surrounding it all. The tremendous scale of the monuments, palaces and art from one of the first great civilizations left me stunned, as did the strange way there was a deep-seated peace even in the midst of tumultuous movement and clamor. The wonderful and the abject co-exist side by side. Though the country struggles with the indigence of large numbers of its population, it is far from a poor place.

And in the children this beauty seemed to come alive, almost making me believe it was a living entity I could capture in my hands. I arrived at the orphanage expecting it to be a sad place, an emotionally wrenching experience. But those expectations were turned on their head. Yes, there were stories behind each of the children – many of them painful and tragic. Stories of death, abandonment, abuse, poverty. They all had a past.

Yet the couple who ran the home, the house mothers and teachers there, the other volunteers, all made these kids their own in a community of sharing and acceptance. They were poor in wealth but not in spirit; limited in resources but not in joy and laughter. An interior peace shown from inside them that was unknown – unsought even – by many people rich in resources. Their hope and resilience amazed me time and time again; the ability of their spirits to overcome crippling challenges inspired me.

Even in the most deprived circumstances they are still kids – they laugh and play, perhaps far less frequently than others; they develop strong bonds and relationships to create family where none exists; and most of all they have an enormous amount of love to give - for nothing more than showing up. The very existence of these children forever altered both the person I was and my view of the world. India shows us where our suffering lies, and in this way becomes more than anything else a teacher, if only we are open to learn from her.

Book Review: Complicit by Mark Gilbert

Blokesablogin — Mon, 22 Feb 2010 22:09:40 EST

Mark Gilbert, the Bureau chief for Bloomberg UK writes this lucid account of how the latest economic mess we saw unravelled in the past few years happened. Complicit: How Greed and Collusion Made The Credit Crisis Unstoppable is worth a read.

The journalist shines through. The book breaks down the smokescreen of big finance into small bytes of information that can be digested by the average reader without a degree in finance. It is topical, and as the tentacles of fiscal mess continues to wrap around and squeeze more people and countries dry, it is a good idea to get educated as citizens.

When we consider the power we have as voters and investors, it behooves us to take the responsibility to understand how messes like these came to be and how indirectly we were responsible. It was not a single person's greed. Rather, as a society, we wanted more. We wanted our cruises, our cars. We wanted astronomical returns. We wanted larger homes with a smaller paycheck.

However, Gilbert does not point the finger at us, the electorate and the investors. Rather, he shows the ropes of corporate finance and banking systems. He explains the smoke and mirror schemes adopted by "reputable" financial institutions that encouraged "savvy investors" (that is us) to trust our nest eggs with "gold-rated stars". Soon, the gold turned to dross and even countries were left with pyrite in their vaults.

The old adage of not putting all our eggs in the same basket was thrown out with yesterday's trash. The monopolistic financial institutions created "new" baskets but they were all smaller sections of the one larger one. That was one aspect of the "plot".

This was furthered by raters who ensured that these baskets were woven so tight and lined with sufficient padding to ensure the safety of the eggs. The eggs did not crack, they crashed. They could not even be redeemed to make scrambled eggs.

Have we learned our lessons or will we continue to shirk our responsibilities as shareholders and voters? Or will we educate ourselves and have the wisdom to distinguish the chaff from the grain and protect our hard earned assets?

Do read this book and decide.

Is The Apple iPad an i-Wash?

sufferingsocrates — Mon, 1 Feb 2010 09:31:37 EST

You could call it jealousy or plain refusal to acknowledge what Apple defines mobile technology to be. But I have come to admire, yet distance myself from the giant strides Apple has created in the vast technological space. No doubt, the iPod revolutionized what a mobile mp3 player should be. I have always admired the user friendliness of the iPod. But the key aspect about any Apple product is reliability. If you purchase an Apple product, you can place a safe bet that what they claim to work will work flawlessly and seamlessly.

On a personal level, I have always wished to own the not so well known brands. But which eventually still are very highly regarded in their own niche segments. Be it the Panasonic Lumix DMC FZ7 (Panasonic Lumix cameras have now created a strong name, but not when I bought it in December 2006) digital camera, or the Cowon D2 mp3 player. The list of features these products give you are unbelievable. It’s just that, Apple's products are professionally done, and extremely reliable. While the Cowon D2 player for example, needs the user to be motivated and eager enough to explore and unearth the true value. And believe me you, it’s one helluva player.

Apple's announcements are so widely anticipated, that the latest one on their tablet pc, took the sheen off the CES event in Las Vegas last month. Google maybe slowly inching up to Apple in the mobile telephony segment, but the iPhone certainly has a cult following, with rapidly growing success. Expectedly, the announcement by Apple on January 27th last week in San Francisco was hyped up. Steve Jobs, who has epitomized the Apple class of products, unveiled the iPad to an audience wanting to be mesmerized. Without going into further details of the iPad, I have my doubts about the future for this segment of products.

Embarrassingly for the iPad, the name itself has been questioned for being eerily similar to what women might claim as being a technological advancement for guarding their biological cycle. To be fair to Jobs and his Apple colleagues, there could have been no sinful thought of offending the Eves of the planet. After all, where will all the Adams go if they possess an iPad and their Eves turn them down for being offensively tech savvy ?Surely, this can't be a deterrent to the sale of the iPads.

The other pertinent question that comes to mind, is the segment which the iPad wishes to target. Admittedly and expectedly, iPad has once again shown why Apple products are so sought after with their sleek finish. But, it seems like a confused business thought to embrace mobile computing with laptop computing. Surely, neither are women going to purchase the iPad inadvertently for their biological purpose, nor are there going to be individuals carrying an iPhone in one pocket, and the iPad in another. Unless, the iPhone is going to fade away due to the iPad.

I wouldn't want to hold the iPad to my ears for taking a call while I am walking! So, what is it? A phone? Or a MacBook ? Or an Apple Netbook ? Or is Apple trying to bluff the consumer into buying an iPhone AND an iPad? This is what leads me to believe the confusion around such an important technological advancement. If mobile computing is the way forward, then one might as well have a fully fledged laptop with calling facilities. Oh wait, Steve Jobs also claims and garners attention to the claim of the iPad being an ebook reader. So what happens of the Kindles at Amazon? Honestly, the Kindle will continue to enjoy its success, simply because, the Kindle is a not-so-confused e-reader as the iPad is.

Now, my only thought as to the naming of this confused device as iPad has to be because Jobs wanted it to remind people of a writing pad kind of mobile, light weight device. And what Apple has been doing with its mobile products, is prefixing an "i" before them. Thus came about the iPods, iPhones, iTunes and so on. So for Apple, "i" epitomizes mobility of a device, and fittingly enough prefixed "i" to give birth to the iPad. Its a different matter that the iPad will take more time to sink in as a recognized segment in mobile technology.

As the ongoing poll results beside suggest, that probably will be a wait much longer than anticipated by Apple. Note

: This is a snapshot from the poll currently run on CNET as on today. Go ahead and cast your vote here.

China - No More Gimmicks

Madhan Karthikeyan — Sun, 17 Jan 2010 04:39:05 EST

When a Company grows very rapidly outpacing its competitors and produces a balance sheet which is less transparent, an obvious suspicion will revolve around the company. The doubt arises as there is very less data to support the growth of such company and all that you can see is glowing number in the quarterly/Annual reports. This was the exact case of Enron, the biggest bankruptcy in the history of US. Now, replicate the same analogy for a country in the current economic scenario, which grows very rapidly at a time when other countries even hesitate to say that they are out of recession. This is China for you!

In recent days, a lot of voices are being heard warning about the Chinese Bubble. This started with the Hedge fund Investor James S. Chanos who predicts that China is headed for a crash, contrary to the popular belief that the country is growing at a faster pace. He is the person who predicted the fall of Enron and similar other Bankruptcies. So, nobody is daring to ignore him. After all, that is his job and he has an impressive track record for years. Chanos, a hedge fund Investor simply bets against a Company/Country, as he believes that it will go down in few months. If his prediction is right, it results in an insane amount of money. (Especially, when they bet against the popular opinion). Classic example is George Soros, whose betting against 'Bank of England' earned him $1b in a single night. This was in 1992.

Coming back to China, Chanos suspects that "Beijing is cooking its books, faking, among other things, its eye-popping growth rates of more than 8 percent". He is planning to give a detailed speech about this at the Oxford University by end of Jan'10.

Here are a few factors which raise questions about China:

The Chinese economy is largely based on Exports to US and European countries, which means the Chinese currency 'Yuan' has to appreciate less against the dollar or Euros to continue the impressive GDP growth. China being a growing economy leads to appreciation of their currency, but the Chinese central bank has prevented the appreciation and has kept the exchange rate between dollar and Yuan almost the same for past few years. This largely helped them to maintain low prices for their goods in the foreign market and thus accumulating billions of foreign reserves. Now, you may think that it's plays to the advantage of Chinese economy. But, the economy at such a mass scale doesn't work this way.

When a country has huge amount of money among its people (in a manipulated market, the Chinese central bank prints loads of Yuans equivalent to the dollars), the value of the currency itself decreases. This triggers an increase in inflation, as the price of the domestic goods increases over the period of time. So, to prevent inflation the Chinese government should at least stop the surplous flow of Yuan. This can be broadly achieved by two ways:

1. Increasing the interest of the money that is been lent by the Chinese Central bank
2. Preventing the Consumer banks from lending out more money. This can be achieved by instructing the banks to increase the limit of cash reserves.

However, during the time of recession, the Chinese government infused a stimulus package of around $600 billion dollars into the economy to prevent any huge recession impact. So, this stimulus money along with the existing flows triggered a real estate boom in China, where the prices of lands/home rapidly increased every month and thus creating a 'Real estate Boom'. Now, the government is highly worried by this boom as they have just witnessed on how the US hosing market turned into bubble and got burst.

This is clearly evident from the fact that the government has just announced that they are backing off the stimulus package and have also announced few strict measures to bank on the lending policy.

Now, the Chinese have to control the interest rates, imports and exchange rate similar to adjusting the volume equalizer in a music player. They have keep adjusting the numbers as and when the other value changes.Since the market is in a bubble stage, a small miscalculation can result in disaster.

Moreover, there is more pressure on China from world countries to stop manipulating the Yuan against foreign currencies. Recently, when China surpassed Germany as the world's second largest exporter, Germany had put lot of political pressure against China to stop the currency manipulation. Apart from Germany, other countries are applying similar pressure, as the cheaper Chinese goods are flooding their markets which eventually slows down the growth of in-house industrial houses. Also, there are also threats from other countries that they will stop buying Chinese goods.

All one can conclude is, China will not grow at the same rate as earlier. If it continues to do so, it will not last long for even a few months before which the real-estate boom market will turn into a bubble. For sure, China can expect heavy backlashes from world countries for its continued currency manipulation.

Post-liberalization India - A Free For All?

Ruchi — Mon, 21 Dec 2009 07:39:08 EST

My Airtel Broadband was down (second time in a month) so I called the Bharti Airtel customer service number from my Airtel mobile. For about two hours, I couldn’t get through ‘cause the “network was busy”. Finally four hours later when I tried again, I got through. By “got through”, I mean, I got through to the irritating menu system. I punched in my account number, reason for calling, type of problem and finally over five minutes of this annoying IVR later, a real live person came online. And her first question to me is, “what is your account number?”

What the hell is wrong with this company? All this song and dance on their stupid menu is just a delaying tactic? Why should the customer provide the same information twice? That too in its entirety! And lo behold, after giving my account number, she asked me the reason for my call. After being told that my broadband was down, her immediate question was when I last paid my bill, the snide implication being that perhaps my payment delinquency was the reason for non-service.

First, that may well be the reason. However, shouldn’t a telecom company of Airtel’s size have at least sorted out these basic customer service questions? Should these questions need to be asked to the customer instead of being shown on the customer service rep’s screen as soon as I call? After I told her to look it up herself, it took her a good minute to figure out that my payment in fact was not overdue. And then about seven minutes after I was connected, did she actually get to (attempting) to solving my problem. Attempt ‘cause problem was not solved. All I got was a reference number and an unapologetic four hour wait time. So about eight hours of work day downtime, pretty much the whole day.

Where’s the mea culpa? There’s none. This is the same company that will send reminder text messages for bill payments, even before the payment is due! And a day late will attract late fee charges. However, there’s no refund for service downtime. There’s also no refund if they add some “service” to your account without your permission. Those annoying “hello tunes” is a classic example. Suddenly callers are hearing some embarrassing song instead of the classing ring tone; yet can you get a refund without a ridiculously long phone call with some untrained newbie on the other side? The thing is, each such transgression costs the customer very little and thus disincents the long annoying phonecall; however, the volumes make a large amount of money for the company.

This kind of annoying in-your-face, bordering or outright illegal “marketing” and deterrent reparation processes is not isolated to Airtel. All service companies that have grown helter-skelter in the past few years, notably telecom and financial services companies have done so on the back of predatory marketing, ill-equipped infrastructure, and of course speed-trained (hence untrained) customer service representatives who are unable to handle even the slightest deviation from whatever crap script they get to read from. Where the customer is at fault either due to neglect or due to plain ignorance (in the case of many new users of service), customer will pay. If the company is at fault, even then the user will pay.

This raises a serious question. In a country where the population is not previously exposed to organized retail and/or service, who should bear the cost of educating and organizing the customer? Post-liberalization, large multinational companies flocked to India salivating at the prospect of one of the world’s largest consumer base. However, since per-capita incomes are so low here, profits are driven by volume as opposed to high margins. This means that the marginal value of each customer is very little and hence, it makes dollar/rupee sense to reduce after sales-service to a bare minimum to the point of ignoring the customer. However, it is not acceptable for these companies to reduce their after sales service standards (to reduce costs) to such an extent that a new user would almost surely get lost in the maze. If adequate levels of customer service are not profitable, then they shouldn’t be in the business; taking advantage of an unexposed and unorganized populace is pure predatory.

Haagen-Dazs - Ice Cream or Creaming The Indian Hide?

J Srinivasan — Sat, 19 Dec 2009 13:31:44 EST

I was rather dismissive when there were a flood of tweets with weird looking Bit.Ly links and hash tags with #HaagenDazs in them, saying this must be one more of those crazy things that fly around. Then I received a DM from a friend who suggested I read this “trending” outrageous thing on Haagen Dazs. I did and was initially outraged by the thought that some foreign ice cream brand wanted Indian Rupees but had the audacity to let only “International” passport holders in!

It bothered me all day today and I let fly some tweets this evening (check out the @jsvasan timeline). My tweets caught my friend’s attention and again it was suggested that I read a blog by what appears to be a foreigner who spends time in India. The blog is eloquent in its presentation of his point of view. But both he and my friend’s blog miss the point that bothers me. But before I run away with it, I’d like to respond to this blog. It is typical for a foreigner to explain away things without assuming any responsibility for misleading his readers or listeners as the case may be.

In my 35 years in industry, including working in a German company as also consulting with MNCs, I have never, ever, ever, seen an International Brand being launched in a new “territory”, let alone in a new country, without every single minute detailed being “directed” and cross checked by the big bosses. Thus I reject the implication that this was a “local” slip up. Too convenient. No, this was and remains an intended and well planned pitch, that has gone wrong. And may well have been in planning for months before the opening. Like the training pre-opening party the blog cites. And to think that their main bill board would be left to ‘local’ restaurant management? An International brand’s first store launch? Rubbish! It was intended and carefully crafted – very possibly by an astute advertising agency who knew the Indian psyche and who specializes in MNC accounts! Why do I say that? Here is why…

It is no secret that we Indian’s still have a hangover from colonial times. Anything foreign and white skin is “in”. Checkout ads and TV programmes, if you need any proof. But back to the HD story. Thus to justify HD’s high prices, they had to pitch to the “upper” or elite. And Noida is full of them. Only those who wouldn’t mind coughing up tons of money for frozen water laced with some flavour and milk, but more importantly to be seen at the place, would be able to even afford such a luxury. Add the population of home sick expats and you have a large enough market and nice $$$ in the business plan.

No, I reject the defense that this blogpost puts forth. I don’t blame him though, since blogging for a living isn’t easy. I assume this because any detail about the author is conspicuous by its absence on his home blog, save except that he blogs because the NYT refused his publish even his letters to the editor “with such alacrity and regularity.”

But the main reason for this post isn’t to let the Blogger know that not every Indians is fooled.

The main reason I post this is the fact that the BillBoard aimed at some things that’s true, even though not palatable. I’m not so bothered that some “locals” must surely have been allowed inside the restaurant. Or that some shameless Indian designed the BillBoard as directed by his brief. Or whether some gora sahib approved it. The ‘inadvertent’ slip doesn’t hurt because it was tactless. It hurts because it hits the bulls eye of truth. We Indians are masters at denial and hypocrisy. The bogey of racism is a convenient camouflage for a real inferiority complex. And I say this as an Indian myself, not as an accusation but as an inquiry that may help us in leaving the colonial past behind for the economic power this country is supposed to be heading towards.

If we had any self respect as distinct from a false sense of outrage, we would refuse to work at this company. We would boycott their products. We would refuse to supply things as vendors, We would file a criminal complaint at the jurisdictional police station. We would file a complaint with the Company Affairs Ministry. We would expose the ad agency this company employs. Given that it has happened in the a Delhi suburb, the MPs and Ministers are at hand for those with connection to demand prosecution of HD and its Indian distributor. The TV channels made passing mention and will be bought over; the ad revenue in these ‘hard’ times can’t be ignored. Blogging is fine to raise awareness, but needs to be the start, not the end of this episode. In this, the “locals” must step up to the plate. Now. Otherwise, a clear and distinct opportunity to send a message worldwide will be lost as also a move to leave our hangover of the past behind. One company tried a similar stunt here in Bangalore. The rest, as they say, is history.

And this is where we fail. Like one of the blogs identified, we are cowards. That’s the reason why we have a colonial past. And will continue to have one, even after the Gora sahib left. It’s time to stand up. Where is the famed courage of the Aryans?

That this has happened under the nose of the Indian Government is the final irony.

Haagen-Dazs, Mistaken Cause

mbjesq — Thu, 17 Dec 2009 09:59:56 EST

Photo credit: Times of India

As I have written in a different context, Indians have a strange love of parsing insults from the innocuous -- or as in this case, the poorly thought-through. Particularly when the phantom effrontery seems to come from foreigners.

The latest uproar involves a newly opened Haagen-Dazs ice cream store, which had the bad judgment to fly the banner depicted above to announce its store opening. It reads:

PARTIED AT THE FRENCH RIVIERA? WELCOME.
Haagen-Dazs

EXCLUSIVE PREVIEW FOR INTERNATIONAL TRAVELERS

Access restricted only to holders of international passports.

The reaction began with a sketchily described post by Times of India writer and Chief Editor of Times Internet, Rajesh Kaira, on his TOI blog, Random Access. According to Mr. Kaira a pseudonymous "friend" of his was refused entry to this Haagen-Dazs store for failure to proffer an "international passport."

The story was repeated by the TOI as a regular news story. Both pieces carried the headline, "Sorry, Indians Not Allowed."

Since then, it has blanketed the blogs, generating breathless commentary. Feedback from readers has been overwhelmingly incensed and incendiary, even in response to the commendably even-handed post on Desicritics.

I don't get it. Sure, the banner was stupid beyond belief. But that's just it: who could read it and believe that it intended anything as sensible as an insult?

The promotion clearly meant to create cachet by equating the consumption of Haagen-Dazs with the romance and luxury of international travel. Was this ice cream seller determined to sell only to people who vacation in San Tropez? Of course not. To people who wish to sell us stuff, "exclusivity" means little more than "limited to anyone who will buy."

In Noida, that means Indians. It makes no sense to interpret "international" to mean "foreign" or "non-Indian". How many non-Indians are regularly hanging-out in the strip malls of the heinous suburban dystopia that is Noida? We can agree that the ham-handed promotion doesn't reflect a great deal of business sense in the first place, but was it really intended to exclude 100% of the store's potential customers?

True, the Times of India writer says his anonymous friend was excluded by the store manager (an Indian) for failure to present the so-called "international passport." Is this remotely credible? First, consider the source: TOI. Enough said. Second, doesn't this smack of, "I know a guy who knew a guy who..."? Third, what the hell is an "international passport"? The only thing I can think of is the United Nations Laissez-Passer, issued to employees of the UN and ILO.

The concluding line on the banner, "Access restricted only to holders of international passports" is, indeed, problematic. It is rather artless and seems takes the theme of "exclusivity" far too literally. But the clumsiness of the language also suggests that this was something generated locally and not by the marketing department of the American overlords. Leaving aside the inanity of the "international passport" requirement, what professional copy writer would follow the word "restricted" with the redundant word "only"? One in India, only.

Common sense suggests that (a) this was a dumb-ass promotional idea, (b) to foster the equally dumb-ass consumption of absurdly overpriced ice cream, (c) badly mishandled in the execution by some dumb-ass Indian ad agency, (d) on behalf of some dumb-ass decision-maker either at the franchisee or within the licensor's organization. The interesting issue is the last. Who was ultimately responsible for this idiocy? If there is insult to be found in this fiasco, was it a racist barb emanating from shameless foreigners?

I did a little investigation, calling first to Nestle, which owns the Haagen-Dazs brand, and then to the public relations office of General Mills, Inc., which owns the rights to all Haagen-Dazs franchise licensing outside of North America. The spokespeople at both companies stated that each store is an individual franchisee, with "independent responsibility and control of advertising and promotion." This doesn't necessarily mean, however, that General Mills didn't have a hand in the fiasco.

And which General Mills?

The next morning, I received an email from the director of Haagen-Dazs brand management at General Mills India Pvt. Ltd., Arindam Halder. Mr. Halder is the architect of brand management for Haagen-Dazs in India, and the man responsible for overseeing the opening of franchises like the one in Noida. His note offers some important details, which support my reading of the event as an ill-conceived marketing idea made even worse by incoherent manifestation:

There have been some reports on various online media alleging that the recently opened Häagen-Dazs shop in New Delhi, India, denied access to Indians. We vehemently and categorically deny this. Häagen-Dazs products and our Häagen-Dazs shop in India are and will always be for our consumers in India.
The recently opened Haagen-Dazs shop is open to one and all, and there’s no question of barring entry to anyone on any basis. The preview on Thursday, 10th December had a morning media event which was attended by journalists of repute from Indian media. The same evening we had a launch party for our friends and families, less than 5% of whom were foreigners. Also, during the mock training days at the shop leading up to 10th December, a lot of interest were generated and hundreds of walk ins were given samples of our ice cream. The store is now open to all public and seeing brisk business.

The poster in question was part of initial local store communication at a few locations within the same mall announcing the opening of the new Häagen-Dazs shop in the mall. The message was intended to suggest that you can enjoy, for instance, a taste of the French Riviera without traveling to France – by enjoying Häagen-Dazs. Unfortunately the reference to the international passport holder on the poster may have led to a significant miscommunication. This was completely unintended and we apologize for creating the misimpression that may have hurt our sentiments as Indians.

Regards,

Arindam Haldar
General Mills India

Clearly, there was no intent or attempt to exclude Indians; and we can all agree the brouhaha was the result of what Mr. Haldar euphemistically describes as a "significant miscommunication." But there are two very pregnant ambiguities in his statement. First, the "local store communication" language doesn't make clear who originated the promotional idea or created the banner, General Mills India (namely, him) or the franchisee. It simply says that the campaign was deployed locally, in the mall where the store was located. Second, the last line, in which Mr. Haldar says, on behalf of General Mills India, "[W]e apologize for creating the misimpression", suggests rather strongly that the banner came directly from General Mills India. It sounds very different than, say, "We regret that this misimpression occurred at a Haagen-Dazs franchise."

The concluding apology is also laugh-out-loud funny. So eager is Mr. Halder to self-identify as Indian, he essentially begs forgiveness for an Indian company having offended itself.

What conclusions can we draw from all this?

I think we can agree that there is no evil foreign hand in this story, no American or European racist out to mistreat Indians in their own country or determined to slight them. Indeed, Mr. Kaira of TOI got it exactly right (in his original essay, not the subsequent, abbreviated news item), even if he failed to look at the contribution of the licensor:

Whatever it is, it is idiotic. I checked later and found that the franchisee is an Indian company based in Delhi and the man incharge [sic] is also an Indian. I have often maintained that we ourselves are our biggest enemies. Our mentality is that of slaves and we think anything is good only if its approved by foreigners, or the “holders of international passport”. This is all about how India and Indians see themselves. Foreigners have nothing to do with it.

I don't necessarily fault the bloggers fanning the flames of this supposed outrage for failing to take the 15 minutes Mr. Kaira and I did to pick up the phone and get the facts. It is slightly disappointing, however, that the online commentators have almost uniformly ignored the obvious lack of malicious intent behind the fucked-up promotion. And there is yet deeper culpability in repeating only the tastiest, most shocking morsels of this story, in complete disregard of the basic fact that the errors in judgment were made not by foreigners, but by Indians -- even though this was reported and thoughtfully analyzed in Mr. Kaira's original story. This episode presents a cautionary study of how untrustworthy and manipulable online information can become as true journalism cedes way to what passes for "citizen journalism" in the blog world. It is always tempting to tell the story, not according to the facts, but according to the sermon one wishes to preach. The art is to tell a morally compelling story within the bounds of the evidence.

To her credit, and as we would expect, Deepti Lamba's Desicritics essay tells the full story -- as it was revealed in the original TOI piece -- and doesn't shy away from noting Indian responsibility for both the debacle itself and the underlying attitudes which engendered it. Yet, even Dee reaches the abrupt and slightly ambiguous conclusion that "racist brands" should be chased from India. Brands aren't ethical agents. People and corporations are. And those at the heart of this story were Indian. Perhaps Dee's intended plea is to abolish self-loathing; but somehow the anti-foreign implication creeps through.

There will be some, of course, bitterly disappointed that there is no longer a foreign scapegoat by whom to feel insulted; but they will have no difficulty transferring their ire to me for pointing this out. And it will feel just as good, since I am a foreigner.

If Indians want to salvage some national pride from the situation, they can always take encouragement from the fact this crazy promotion could happen in Mother India, but could never have occurred in the United States. After all, most Americans don't have a passport and have not heard of France.