Saturday, 30 April 2011

Vanity thy name is Chinese internet company

Why does a Chinese internet company wish to get listed in the US ? I can't fathom the logic. Hence this post.
The Chinese internet landscape is a strange one. Almost every one of the global majors is blocked. Facebook, YouTube, Twitter, Blogger, you name it and it is blocked. Instead there is a carbon copy of each one of them locally in Chinese. For Google, read Baidu. For Facebook, read Renren, for YouTube read Youku or Tudou, for Twitter read Sina Weibo or the dozens of similar clones. These are the ones that are wildly popular, having millions of users, only in Chinese and therefore almost exclusively used by Chinese. Never mind that these  are all censored , watched, bullied, etc etc by the jīndùn gōngchéng (The Great Firewall). This post is not about that cursed censorship.

These sites are all by entrepreneur led start up companies , similar to the American originals.  And they all want to list and make huge money. Fair enough. But they seem to want to list in the US. Qihoo 360 (an antivirus company) and 21 Vianet (a hosting service provider), recently listed. Renren is next on line. As is Tudou. Why O Why ?

Its fair that you want to list in the market which can give you the highest IPO price. These days valuation of a company rarely depends on where it is listed. You want to list in the market that is most liquid. The Nasdaq is the most liquid market for such companies in the world. But for the size of these companies, there is enough liquidity in virtually any major market. You would list in a place where your major customers are (the reason why Indian software companies are all listed in the US), as this is a significant weapon in a sales pitch. But none of these Chinese companies are targeting the US - Americans are not going to learn Chinese in a hurry.

Consider the downsides. You fall into the dreaded ambit of the Sarbanes Oxley Act, although that tiger is looking rather old and the canine is decaying. You need corporate governance standards that are going to be a real challenge to meet for Chinese companies. You open yourself to requirements of transparency that sit uncomfortably in China. The possibility of getting sued always exists - Renren hasn't even listed and already noise is being created that the prospectus is misleading.

There is the obvious alternative for these companies - Hong Kong. Highly liquid market, excellent valuations to be got, internationally respected, but without the major downsides such as the Sarbanes Oxley Act. And they can speak Chinese in Hong Kong, although the mainlanders scorn at the Hong Kongese attempts at Mandarin.

All this is of course well known to the entrepreneurs - they are brilliant businessmen after all. So why do they then plunge into the US market. I think the answer is Vanity. Perhaps their own as well as the vanity of the Chinese government which would like to quote large numbers of Chinese companies being listed in the US. Vanity stroked by greedy investment bankers, is probably the cause of this bull rush. Its a dangerous substance to introduce into the jungle of business. But then, its always been there and perhaps always will be. After all, businessmen are human beings first.

With due apologies to Shakespeare for plagiarising the title of this post. Although he wrote in Hamlet , Frailty, thy name is woman, in popular usage Vanity is often the attributed womanly quality in the quote. As a parting jab at the multitude (?) of incredibly beautiful women who throng this  space :) perhaps that juxtaposition is not entirely misplaced ! I am taking cover !!

Sunday, 24 April 2011

Taxing Times

The season for tax returns is just over in the US. Its just beginning in India. Appropriate time to rave and rant on the nonsensically complex process of making out a tax return. No, I am not a tea party activist (I drink coffee and in any case, I wouldn't be seen dead with that rabble). I am just venting steam ahead of having to sit down and do the damned thing. Thankfully I only have to do an Indian tax return, but that is torture enough.

Everybody knows that the famed Ramamritham absolutely loves Income Tax. Great opportunity for framing fiendish rules and impossibly complicated forms to fill. Just consider the following evidence.

The first problem is to decide what form to fill. There are no less than 8 different forms you can fill. It all depends on whether you are a HUF or a BOI or a AOP. What if you can't figure out what those are and if you figure you are just a human being ??? Not sure - In Ramamritham's lexicon, normal human beings don't exist. 

With delicious irony, he has designed a from called Saral for dullheads like you and me (OK OK, just me). Saral in Hindi means easy.  Never mind that the form appears to be intelligible only to a rocket scientist. When somebody pointed out this irony to him, he promptly renamed it Sahaj, which is just a complicated form of the same thing - simple !!

Of course the normal calendar  is just too "saral". So came the innovation of April to March. For that we have to thank Sir Humphrey Appleby, forerunner and idol to Ramamritham. Something as simple as a calendar year is of course anathema to these venerable gentlemen.

He expects you to fill the return for something called "the previous year to the assessment year". So the assessment year is supposed to be the next year into the future so that you can file the return for the previous year !! I am now supposed to file the return for assessment year 2011-12, declaring income for the previous year 2010-11, corresponding to my financial year which is also 2010-11. Whoever dreamed of this concept deserves the highest accolade of Ramamrithamology.

As for the Form itself, I defy any sane human being (Chartered Accountants are not classified as sane! ) to be able to fill even one item. Other than the question, are you male or female, that is. Take this one for example.

"Long- term capital gain where proviso under section 112(1) is applicable (Without Indexation)-Code in SI Schedule is 22, Tax Rate is 10% ;Enter only positive value from Item B4c of Schedule CG AFTER loss adjustment under this category in Schedule CYLA and BFLA, if any. "

One of the fundamental principles of any legal system anywhere in the world is Ignorantia juris non excusat (Ignorance of law is no excuse). Somebody should file a case saying this principle has been breached by the Indian tax law - surely human brains haven't evolved to the point where they can begin to understand the Income Tax Form.

Sunday, 17 April 2011

Lights, Camera, Action

This post is about a movie !  It takes some gall for a blogger who knows zilch about movies and doesn't see them, to do a post on something his readers are masters of. But that's the beauty of this medium - you can fearlessly propound  on things you don't have a clue about.

I am told actors are key to movies ! This one stars a legend as a hero. Across continents, this man is reputed to be with the midas touch - anything he touches turns into gold. There are assorted villains, but the beauty of the movie is that you often don't know who the real villain is. There is a faceless foreign government, who everybody loves to bash these days (not America - in movies, America is all mom and apple pie). The only slight trouble is that there isn't a very pretty heroine. There is a lady actress who comes roaring to defend the hero , but alas, she will not set Zeno's heart go flutter flutter and her role casts her as a Minister. She does manage to be exotic though, speaking in French.

The song and dance sequences are a bit metaphorical. There is a lot of song and dance made, but there isn't actual singing and dancing - if you know what I mean. I am told that song and dance sequences are strictly the preserve of Indian movies and this being a foreign movie, its absence is apparently pardonable.

Being a foreign movie, it has to have a story , I believe. I am reliably informed that such a condition is not an absolute necessity for an Indian movie. Anyway this one has a great story full of twists and turns. Enter the successful hero, who is already a legend. He has vanquished villains as far away as Japan, until even the Japanese have embraced him as one of their own. He now makes a bold plan to revolutionalise the world with a great invention.

Now come the villains. A foreign government, known to copy everything, is trying to steal his invention. Three of his associates are apparently tempted by spies from this government to sell their secret. They are caught, and executed melodramatically, even though they loudly protest their innocence. Cut to the heroine. She comes riding on her white steed, sabre rattling to this foreign government. She wishes to slay the dragon to save her hero. The foreign government scares her off threatening dire consequences if she rode any further. She retreats after a memorable dialogue sequence about economic warfare.

The hero now has some doubts if he has acted heroically. After all the three were honourable men. Could they have let him down like that ?? He starts to have self doubts. He retreats back with that constipated look on his face (a look made popular by those who act in Indian TV soaps). Then it is established that the three might not have been guilty after all. It looks like it might be curtains up for the hero. But then his two trusted aides fall on their sword and sacrifice themselves for the hero. The hero is saved after all. The movie ends rather abruptly - surely the producer has left enough hints that there is to be a sequel.

I felt the movie direction left a little to be desired. An expert such as Gils would have done a better job of it. Cinematography could also have been improved if they had hired RamMmm.  Still it's a good movie to watch on a lazy Sunday.

The movie is called Renault. You can read a better version of the movie plot here.

Saturday, 16 April 2011

The morality of pay

The Church of England has taken a line on executive pay. You may ask what has that body got to do with the world of business. Well , there is the small matter that the Church manages a £ 5.3 bn portfolio and is a shareholder in many companies. And, of course, it is a voice of morality, however much you may agree or disagree with it.

The Church of England has said that it will not vote in favour of executive pay proposals that have bonuses more than 4 times the salary. While its influence as a shareholder might be somewhat limited, its voice has the benefit of a moral argument. Just a little while ago shareholders in HSBC voted to limit bonuses to a maximum of 10 times annual pay.
Readers may pause here to consider the obvious question. Who on earth earns bonuses many times his salary ? This blogger has seen a lot in business. Outside of the financial services industry,  there is virtually no place where an employee can earn 10 times his salary as a bonus. So what's so special about the financial services industry ??

What is special, is that the pay structure for bankers has remained rooted in the past. Years ago, most banking businesses, especially investment banks , were partnerships. Salary at the top tended to be very low, and bonuses were really a form of profit sharing amongst the partners, who were the owners. That's why, until not so long ago, being made a partner in Goldman Sachs was such a big thing. Now, most of these entities are corporates. Senior managers are employees, not owners and therefore have no right to profit sharing. But the old pay structure remained and its entirely the fault of the shareholders that they let it continue.

Its a completely specious argument that such stratospheric pay is a reward for talent and performance and if they don't pay such amounts, talent will go elsewhere. The market for top talent is highly imperfect and is not ruled by price alone. And beyond a certain point Maslow's theory kicks in - there isn't that much of a difference between $25m and $ 30m, although mathematically one is 20% higher than the other. And come to think of it, a little less talent going to finance would be a good thing - some plodders would bring sanity into that insane world of risk taking.

This blogger is of the view that the Church of England is absolutely right in taking the stance it has done. And other shareholders would be wise to follow suit.

Sunday, 10 April 2011

Driving in the fast lane

Do you drive on the left of the road or the right of the road in India ?? Its not as stupid a question as it seems. Most of the British Commonwealth drives on the left of the road. India, being an honourable member of the Commonwealth, ostensibly follows the British tradition and drives on the left. But as with many things about India, its not all that simple.

One of the axioms of Indian roads is that however wide they may be and however many lanes may be designed, traffic flows only in one lane on either side. This is the right hand most lane. The other lanes to the left, if they exist, are used in a multitude of creative ways. So you basically drive on the right and try and find an opening on the left to overtake. That makes you a right hand drive country, right ? Confusing ??

You see, the problem is that only the righthand most lane is open for driving continuously. That is where the truck laden with 24 tons of precariously balanced stuff, the autorickshaw (tuk tuk to some) and the bullock cart , all ambling at a stately 20 kmph admiring the scenery, monopolise. So if you want to drive in the fast lane, you keep darting to the left.

The left has its own story to tell. Firstly, about 30% of the space is encroached by street vendors, who are hawking every imaginable type of stuff. A further 20% is encroached by the Rajalakshmi who is buying the stuff (if she waves her arms as she is wont to do, then an additional 10% goes). Then there is the Ramamritham, who has brought the aforesaid female in his car and who has parked it right in front of the street vendor (Parking is my birthright and I shall have it - with due apologies to Tilak). In any case parking even 50 mtrs further on and walking is anathema to Rajalakshmi - regular readers of this blog are familiar with her dimensions which make this act a physical impossibility)

Further on, occupying  the next 30% of the road are the7000 people waiting to catch a bus. Now anybody who has ever caught a bus knows that you better your chances by standing right in front of competition (queuing is a peculiarly British trait that was not bequeathed to the colonies). Therefore you get the picture of 7000 people each trying to be in front of the other. Ahead of them is the bus itself parked at an angle of 90 degrees to the road, so that he can make a quick getaway and overtake his buddy in front,

The next 30 % of the fast lane is blocked by a big SUV coming on the wrong side of the road with his headlights full beam on. It is accepted wisdom that if you drive on the wrong side of the road with your headlights on, you are OK , whereas if your lights are off, you are committing a cardinal sin. What he is trying to do is save an additional 2 yards to the next U turn - our SUV drivers are very conscious about petrol conservation.

A further 25% is commando territory. That is the domain of the 2 wheelers, who insist that driving in a straight line is an insult to their manhood (or increasingly to their womanhood). This is the fat mama, with even fatter mami behind, a kid in front, a kid wedged between the two, helmet hooked in his hand (he wouldn't wear it in case it messed up his hairdo),  and doing spurts and bends which would make Valentino Rossi proud. No sane driver with aspirations to the fast lane would mess with this crowd.

A futher 15% is at the mercy of the big car who wants to turn right, but can't be bothered to wait in the right lane. So he waltzes up the left in order to pass the idiots who are waiting on the right. Of course he is not the only one with the idea, so the next guy passes even more to the left. And so on and so on.

Discerning readers would have noticed by now that it all adds up to more than 100%. That's because, both space and time, are rather flexible in India.

It is also important to remove misconceptions about Indian roads that exist in foreign lands. No, elephants do not roam the streets ( as long as you are not uncharitable to Rajalakshmi). There are no monkeys either (be kind to the two wheeler hero). Neither are there buffaloes (the lumbering truck is not a buffalo).  Its all a question of right or left. 

Now tell me, do Indians drive on the left of the road ? Or the right ?

Friday, 8 April 2011

Indian Standard Time

No society understands the theory of relativity better than India - At least those elements of the theory of time. That time is not absolute , but is indeed relative. That's why the concept of Indian Standard Time is commonly used to explain the Indian's mastery of this subject.

That strange introduction is meant to draw attention to the Cairn Vedanta deal, which is again held up by government indecisiveness. Cairn Energy, a UK listed company wants to sell its 62% stake in Cairn India to Vedanta. The balance shares are held by the state owned ONGC. Some time ago Cairn had signed an agreement whereby it need not pay any royalties out of the oil drilled - instead ONGC would pay the royalties. Now ONGC wants to renegotiate this contract as a precondition to a government approval of the sale of Cairn's stake to Vedanta.

This post is not to discuss the merits of ONGC's stand. But one of the unintended consequences of the 2G scam is that nobody in the government is now brave enough to take any decision, lest he be accused of corruption. The easiest way now is to get as many expert opinions, have joint committees, etc etc and simply not take any decision .

The Cairn Vedanta deal has been going for some 8 months now.The shareholders approval for the deal had a deadline of April 15 for completion. Two days ago the government has deferred the decision on approval to a "ministerial panel", which is yet to be formed. The saga goes on.

Time is a precious commodity in business. The government is well within its right to reject the deal. Or approve it. But decide, it must, one way or the other. The fear of scandal cannot paralyse it into inaction. Speed of decision making is not mutually exclusive with good governance. There is an example inside India itself to follow. Gujarat offers the role model.  The state decides, and decides fast. There is no dithering. The results of its action is there for all to see. There isn't much whiff of scandal and the extent of progress is Chinaesque.

Wednesday, 6 April 2011

Sunday, 3 April 2011

Hail the leader

If you wanted to understand leadership, you couldn't have done better than to be glued to the TV screens in India yesterday. It was the final of the Cricket World Cup, it was played in Mumbai and India won, setting off a celebration, the likes of which is  unlikely to be seen anywhere in the world - not even if and when Brazil wins the football World Cup in Rio.

This post is not about the victory , but about the leadership of the captain MS Dhoni. They say leaders are born and not made and he seems to be a perfect example of that cliche. Early on in his career, some brilliant selector spotted his leadership skills and elevated him as the captain of the country. And today he has pulled perennially underachieving India to the top of the world cricket. Indian teams have been as talented before, but the deadly element in the mix now is a leader.

Just look at the calmness on the field even when things are going disastrously wrong. With that steely calmness, he gets everybody to claw their way out of the hole. There is never a display of anger, never a dressing down of somebody who isn't performing, rarely the drooping of the shoulder when defeat seems to be looming large.

Leaders have to be incredibly bold. The team selection he did yesterday was bold, even with the benefit of hindsight that his pick was wrong. But he'll probably never make a bolder decision than when India was tottering at 114 for 3 chasing 275 and he promotes himself and walks in to a pressure cooker situation. His form with the bat hadn't been good lately and the conventional thing to do would have been to drop himself down the order and play safe. But in he walks, takes the pressure on his shoulders as a leader should and  the rest is history. Even if he had failed, it would have been unparalleled as an act of incredible boldness as a leader.

But to me, the final proof of greatness as a leader was after the game. Did you notice that as every player was celebrating wildly , doing victory lap after victory lap, Dhoni wasn't to be seen much. He received the cup, gave it to his teammates to parade it around and simply disappeared. Now that is a truly great leader. Let the team rightfully receive and soak in the adulation. His own joy was simply knowing that it was his leadership that made the difference.

A truly class act.

Friday, 1 April 2011

Water Water everywhere ......

........ Nor any drop to drink, goes The Rime of the Ancient Mariner by Coleridge. He could very well be describing the labour situation in India. It seems to be one of perennial shortage. How can this be ?

After all, India is a land of 1.2 billion people. The unemployment rate is officially at 9.4 %, but we all know that the real number is much higher. This is because of seasonal employment in agriculture and unemployment outside the seasons. Underemployment is even higher - getting some job just to exist, but capable of doing much more. While India's growth is impressive in recent years, it has created nowhere near the number of new jobs required to cater to the number of people entering the job market every year. And India is a young country, not an ageing one. More and more people join the workforce each year.  The unemployment situation is so acute that the government runs a hugely expensive National Rural Employment Guarantee Scheme. And yet, ask any company what their biggest problem is - finding people to work for them and then staying.

At the more skilled levels, this talent shortage is easy to understand. The education system, despite all the improvements in recent years, is woefully inadequate. So talent is in real shortage. That's why you see the scarcity of talent to fill skilled jobs. At any level of skills (I am not talking just of IT here, but plumbers, fitters, draughtsmen, etc) you can command multiple jobs. Employers chase you rather than the other way around.  That is, at least, somewhat understandable.

But what about unskilled jobs - jobs that require no skill at all. Jobs like a security guard who is now ubiquitous in every building. Cleaners, maids, etc. There is a huge shortage of people even here and attrition rates are the highest in this sector (some 10-15% a month !). This foxes me.

There are some reasons for this phenomenon. The obvious one is that  jobs are in urban India while most of the labour is in rural India. While there are a lot of migrant workers, it becomes increasingly a very costly option for the worker due to one simple fact - the cost of housing is simply unaffordable. Even a place in an awful slum living in appalling conditions costs a lifetime of earnings. But another more important reason in my view is the increasing unwillingness to work hard. That's why a Railway clerk position attracts a stampede of applicants, but a field salesman's job in a private company is not so attractive.

There are really only two solutions to balance the demand supply equation. The first is education. On a massive scale. About 10 times the level at which it is today. This is a job for both government and private industry. And secondly to take jobs away from urban into rural areas. The only sector that can do this on scale is manufacturing. A huge lobby, fueled by misguided NGOs, is blocking this by resisting every land transfer from agriculture to industry.

Meanwhile, in this land of 1.2 billion people, we still can't find enough workers to man our jobs.

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