Amazon vs Walmart in India

The war for the future of the retail trade in the world is going to be fought in India. It has happened by default, but happen it nevertheless has. The irony hasn't struck the policymakers in India as yet - they of the medieval dinosaur disposition of still not allowing foreign companies into the retail sector in India. If that makes your head reel, then this is India, true to its form.

Globally, Walmart (the old incumbent) and Amazon ( the not so new disruptor) have been itching for a gigantic fight for a long time. In the US, Walmart dominates in store and Amazon dominates online. There it is a fight between one form of retail trade and another. Not a headlong fight. In China, which would have been the logical war zone, both have failed against domestic competition - not least because the playing field is not level (actually tilted a full 90 deg). Hence India, by default, has become the battlefield.

It actually is peculiar that India is the chosen fighting arena. This is a country where foreign firms are still not allowed to open a store in India. You need domestic partners. Every rabble rousing politician has demonstrated and agitated in the past against allowing wicked foreigners into the retail trade. Most of India's retail trade continues to be the mom and pop store. 

Amazon was the first to enter. Amazon.in is now globally second (distantly) only to Amazon.com in the Amazon universe. E Commerce is still minuscule in India but given India's size , even minuscule is big. Amazon has been pouring money into India, adopting the time tested formula from the US. Their competition was Flipkart, a local E Commerce provider. Now Walmart is acquiring Flipkart. This will now become an all out battle between the two for the online market . Right now Flipkart and Amazon.in are close in India with Flipkart being the marginal leader. With the acquisition, Walmart will now be bigger online than Amazon in at least one country.

I wonder what the other global majors are thinking about all this. Carrefour and Tesco, the old European giants, are not present here at all.  OK Tesco is , via a joint venture, but you would be hard pressed to find a store. The newer European upstarts Aldi, Lidl, et al, can't point to India on a map and so, have not come. The Chinese, notably Tmall and JD seem to be interested only in slugging it out in home territory. Alibaba is of course more global in outlook, but they are  in the B2B space. So its just the Americans wanting to fight in India.

Where is the famous Ramamritham in all this. How come none of the rabble rousers are yelling their heads off against evil Americans ? The truth is that both Ramamritham and the political worthies are old foggies. Neither know how to switch on a computer, let alone how to buy anything online. Events have overtaken these dinosaurs before they have realised what's happening. The same thing happened with the Indian IT industry a couple of decades ago. The only way to beat Ramamritham is with something he does not understand.

So now the war will begin. This blogger is salivating at the prospect. You see, he is a piddling customer of both Amazon and Flipkart. "When elephants fight, it is the grass that suffers",  goes the old saying. I beg to differ. When these two elephants fight, it will be the grass that will flourish. I am looking forward to all the lovely deals and freebies !

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Learn from history - Steel tariffs don't help

The US has been there before many times. And yet they do it again and again. Granted that logic and thoughtful action is not a feature of the current US administration. But still, you would have thought they would have read up what happened when they tried it last time.

I am referring to the announcement today that the US plans to impose a tariff of 25% on steel imports.

George W Bush tried the same tactics in 2002, with an eye on the same political prize - voters in Pennsylvania and West Virginia.  He imposed 8-30% tariffs on imported steel . At that time the target was European steel. Europe promptly took the US to the WTO and won sanctions of  some $2 billion. More tellingly, the politically astute European Union threatened retaliatory tariffs on oranges (goodbye Florida votes) and cars (ta ta Michigan votes).  Meanwhile steel prices in the US surged, screwing industries that buy steel. A later study concluded that 200,000 jobs were lost in the US as a result.  Bush retreated and called off the tariffs in 2003.

His father George HW Bush , and his predecessor Ronald Reagan tried various forms of it too. Reagan famously tried quotas on cars (at that time the target was Japan). The end result of that was that car prices went up by $1000 between 1982 and 1984 and the auto industry actually lost 60,000 jobs as a result of the quotas.

Obama indulged in steel tariffs too. His target was China. But that administration did it selectively - huge tariffs, selectively on products and against companies from China that were dumping.

It is not clear what the current administration is trying to achieve. Presumably their target is China , the current bogeyman and indisputably the cause of depressed world steel prices because of overcapacity. But China exports not much steel to the US possibly as a result of the Obama era actions. It is the 11th largest exporter to the US occupying a small portion of US imports - even India is above it in the rankings. The biggest exporter of steel to the US is Canada, followed by Brazil. Is the US trying to screw Canada ?

Why pick a trade war with Canada of all the countries. The US has a  deficit of $ 12 bn in goods and a surplus of $24 bn in services on a $ 700 bn two way trade. Overall the US has a surplus with Canada. And you want to provoke a war with them ? Yes, the current administration has launched a war on NAFTA, but even by that perverted logic, the target must be Mexico and not Canada.  Canadians are not fools . Selected tariffs from Canada  on Vehicles (bye Michigan) and Agricultural Produce ( adieu Ohio) and we are back to reliving the George Bush experience.

Albert Einstein is famously quoted to have said " The definition of insanity is doing the same thing over and over again, but expecting different results.” But to avoid that, you have to read history to determine what has been done before. Well, in the current administration, reading history is too much to ask. They would make a "yuuge" improvement if they could just begin with reading !

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Buy American and Hire American

When this blogger started blogging in 2009, his very first post was titled "What is American goods, anyway ? " Eight years later, when returning back from a two year hiatus in blogging,  the same theme resurfaces as the second innings of blogging is started.

The trigger for this post is of course Trump's executive order titled the same as this post, which he signed with much fanfare three days ago.  The order , of course, is pure bombast and is only meant to show that the President is doing "something". It simply orders the Secretary of Commerce to tell the world what the hell this means in 60 days and orders sundry other Ramamrithams to specify how it will be implemented  in 150 days. I was not aware that you need an Executive Order to tell people to do their jobs, but apparently in the world of alternative reality, that is required.

Precious little, other than nuisance value, will come of it. For you see, in today's globalised world of supply chains it is almost impossible to determine what is "American" as my first ever post argued.  If "value added" is the yardstick for measuring national origin, then your iPhones are as American as mom and apple pie even though they are entirely manufactured outside the US. If the physical act of manufacturing (read final assembly)  is the yardstick, then the iPhone is Chinese while BMW is American.  If the entire supply chain has to be in the US, most products will simply disappear off the shelves as some of the raw materials and components are simply not available in the US and have to be imported.

The Executive Order gives some clues to the warped thinking - apparently they would like  that "for iron and steel products,  all manufacturing processes, from the initial melting stage through the application of coatings, occurred in the United States ."  US iron and steel has been on decline for decades. Only an idiot will set up steel capacity in the US - after all the next President can sign another Executive Order to the opposite. Not a single new job will be created. What will only happen if this pig headed policy is even half tried is that the existing US steel plants will jack up their prices. The American consumer shall pay.

The problem of disappearing jobs is a real and serious one, but there are no easy fixes. It cannot be tackled by trumpeting economic nationalism. It certainly cannot be solved by sitting on the toilet seat and tweeting whatever comes to your mind.

By the way, the GOP was meant to stand for free markets and trade. It would have been appropriate if a President Sanders were to try something like this. But a Republican President ?

PS : Its nice to be back. Sorry for going away for two years - I was dabbling in a social enterprise in the interim, but am now back in retirement, and therefore back to blogging.

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The French are, well ...., crazy !

The French have an advanced case of obsession with "culture". At least the French government does - the French people are probably as willing to dance Gangnam style or shop at Walmart as ogle at the impossibly unaffordable haute couture ! The French government doesn't like American soap, doesn't like English words stealing into French, doesn't even like their steel company to be bought by foreigners. Now they are picking up a new fight. They want to protect French book stores against  big bad Amazon.

The fight goes somewhat like this. Apparently small book stores are an integral part of French culture ! As with everywhere else, small bookshops are going out of business. The first threat came some 20 years ago with the arrival of the supermarket chains selling books. Promptly the French parliament passed a law "limiting discounts that can be given on books".  This was to protect the 2000 odd book shops in France so that they can continue to charge high prices and the supermarkets could not go below them. Then came online retailing. Everywhere else in the world books are largely being bought, if at all, online. France is no exception. Enter the chivalrous MPs in the French Parliament. They are now decreeing that online retailers (read Amazon) cannot offer free delivery - they have to charge so that they can be conveniently more expensive than the local book store.

In a mind boggling assertion, Christian Kert, the parliamentarian who sponsored this bill asserted that "The (book pricing) law is part of our cultural heritage" !!! The bill passed unanimously - now anybody who knows France's politics knows that nothing can ever be unanimous - not even free sex. But the "Screw you Amazon" bill passed unanimously. Wow !

Economics is not necessarily the strong point of French law makers as has been amply demonstrated over the years. It is not even their weak point - it simply does not come into thought at all. To protect 2000 geriatric stores, the lawmakers are willing to piss on millions of consumers. Governments are supposed to protect consumers, not mollycoddle long in the tooth producers. 

Notice how the "culture" that the government wants to protect is often what the French people themselves don't care about. French food, French wine, French fashion,  are all conquering the world with no assistance needed from the government, thank you very much. But French pop  music sucks; so mademoiselle dutifully listen to One Direction ! The government is outraged and passes quixotic laws unanimously.

The French deserve better. Their entrepreneurs, businessmen, workers are amongst the best in the world. There are great aspects of French culture (including shutting everything down in August !) that will thrive , not because governments are protecting it, but simply because people like it. There are other aspects of the culture, that should die, because they don't appeal to people anymore. There is no such thing as a static culture. Cultures evolve and so they should.

Thankfully, I never go to  a bookstore in France to buy books. For that matter, I am willing to bet, neither does M Christian Kert. Some smart TV reporter should ask him when he last bought a book and what the title was. His response may put the redoubtable Sarah Palin to shame !

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Fairer trade or freer trade ?

“This house believes that making trade fairer is more important than making it freer” – this is the current live debate hosted by The Economist here. This blogger is a complete and unabashed fan of The Economist and subscribes to the view that it is the best publication in the world. The Economist debates are a fascinating discussion of very relevant issues and it would be difficult to find as interesting a debate on economics as between fair trade and free trade.

The context must be clearly understood. Despite all the tall claims made, the world is nowhere close to free trade of an acceptable sort. The bastions of free trade are all fiercely protectionists in their own areas – agriculture in both Europe and the US, and pretty much everywhere else in the developing world. Everybody wants free trade in other’s homes, but not in their own backyard. Tariff and non tariff barriers abound. The crawling pace of the WTO talks, which go on for decades is testimony to this, although it has to be said much has indeed been achieved.

Ranged against free trade is an assortment of all sorts of constituencies, ranging from noble social organizations to bleeding heart socialists. Their noise making capability being much higher, free trade is being tainted as a four letter word and blamed as the originator of much misery. Arguments against free trade range from exploitation of workers in the poor countries, loss of jobs in rich, threat to way of life in all sorts of places, inequality, etc etc. There is some merit and much bunk in these arguments.

What is fair trade anyway ? Fair to whom ? Fair to the producer or fair to the consumer ?

The value free trade has brought to so many millions of people is often not given the credit it deserves. Prices of almost every good or service is lower because of free trade and competition. Producing something in the best place it ought to be produced, makes both quality and price better. While the opponents of free trade propagate the cause of the producer (the poor French farmer who will lose his French way of life if the big bad beast of free trade is unleashed), nobody propagates the right of the consumer ; why should the average Pierre on the streets in Marseilles pay more to keep the French farmer in Brittany in cosy comfort ?

Think about this. All arguments of protectionism are made by people unable to compete. If they could compete and win, they would not be scared of free trade. They are scared of free trade because they do not offer the best cost quality equation. Therefore they want the guy who offers the best deal to be kept out because only then can they survive. So they want some poor sod of a consumer to subsidise them. For every compromise somebody makes on free trade, it is the consumer who is jacked.

This is an opinionated blog, of course. This blogger believes that the only fair trade is free trade.

But read The Economist's debate. The excellent Ngaire Woods makes a powerful argument for fairer trade. As does Prof Jagdish Bhagwati for free trade. I am delighted to say that at the time of writing this piece, 52% of those voting agreed with me. But it is indeed true that the Economist reader is no average Joe Public. If there was an open vote amongst the population, I am sad to say that not even 5% is likely to take this view.

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ICICI Bank is a foreign bank !

This blog started life a year and a bit ago with the very first post titled “What is 'American Goods' anyway ?" . Now I return back to the same theme after reading a news item that the Reserve Bank of India has declared both ICICI Bank and HDFC bank to be “foreign banks”.

For those unfamiliar with the Indian banking environment, throughout the socialist days of the 70s and 80s India lived with a nationalized banking environment. Government owned banks were the only choice. While they had their strengths, technology and innovation were not among them. They were forced to give out buffalo loans to “poor farmers” and then write them off (collecting buffalo tails as proof of death).

Two banks changed the landscape in just 5 years – ICICI Bank and HDFC Bank. Both were private banks and they revolutionised banking in India. Sure, they have their faults (many actually), but they were a completely different experience to the government banks. In no time they shot up to be market leaders.

They are listed in the Indian and US stock exchanges. Probably 90%+ of their business is in India. Most of their branches are in India. The management is entirely Indian. They are headquartered in India. But apparently more than 50% of their equity is now held by foreign entities, as they are freely traded on the stock exchanges. Voila – the country’s central bank has declared them to be foreign banks.

This just goes to show the devilish difficulty in trying to decide nationalities of corporations. Many companies today are truly global. Their shareholders are from all over the place. Actually which nationality do you ascribe to ICICI Bank. More than 50% of the shareholding may be in “foreign” hands, but that is many nationalities put together. Almost certainly the single largest shareholder nationality will be Indian. So if ICICI Bank is not “Indian”, then what is it ? Stateless person ??

So what IS the nationality of a company ? Does it indeed have to have a nationality at all ?? Usually in law, the place where the company is registered is deemed to be its nationality. To determine whether its “foreign” or “local”, its usually the % shareholding that is considered. Some countries, most notably Britain and France, value heritage. Cadbury is always a ‘British” company and Danone always a “French” company, no matter what. Some value where its headquarters is – HSBC is a prime example. Its name says Hong Kong & Shanghai Banking Corporation. Its listed in Hong Kong and in the UK. Its boss is British, but he recently moved to be based in Hong Kong. What about companies which have split personalities – companies like Unilever, Royal Dutch Shell and Reed Elsevier which have two headquarters, two parent companies, etc ?

Actually it doesn’t matter. Except when you have clauses like ‘Buy American” and “Buy Chinese”. Except when you discriminate “foreign companies” from domestic ones. Companies are the truly global manifestation of the human race. Companies have gone where the species should go – being truly global and one – but where societies and nations will never go.

Here’s an aside. You may recall the post about a company standing in the US elections. Presumably only “US companies” are entitled to stand. But we come back to the old problem – what is an US company ? Imagine Osama bin Laden floating a company with majority holding by his US followers, registered in the state of Delaware and standing for the office of the President of the United States. That would be something !

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Chinese tyres vs American chicken

There’s a spat going on between the US and China that is threatening to become a trade battle, if not a war. The US imposed tariffs of 35% on Chinese automobile tyres on the grounds that imports were surging and that the domestic industry had to be protected “temporarily”. China immediately appealed to the WTO and there the matter stands now.

But China is a prickly nation. It is quick to take offence. It announced last week that its launching an investigation in American “chicken parts” being dumped in China and putting Chinese poultry farmers out of business. Of course, this was entirely unrelated to America’s action on its tyres.

Reading this made me sit up. Is America capable of exporting something that undercuts China ?? How on earth was that possible ? But it indeed does seem to be the case. The “chicken parts” in question are wings and legs. Apparently these have no use in the US – they are virtually worthless and go for 2 cents a pound. But these are delicacies in China – one of the quaint experiences of mine in China is to see elderly women go out early in the morning to buy fresh chicken legs, just as Indian women might buy milk. These “chicken parts” sell for 40 cents a pound in China. Lo and behold America is cheaper than China !

A spat is brewing and if nationalistic fever is stoked (all too easy in both the countries), this can escalate into a mini trade war. This is exactly what the world does not need today, although politically this will be, unfortunately, popular. It will be a sad day if the world’s economic direction is dictated by the likes of Rush Limbaugh and the prickly faceless mandarin in Beijing.

These are difficult times for free trade. Capitalism is on the defensive and free trade is becoming a four letter word to far too many people. But it is precisely in these recessionary times that the world needs more of free trade, not less of it. But then a free market evangelist is somewhat akin to a paedophile these days.

Whatever might be your views, surely there are more worthy causes to fight wars on than chicken feet !

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What is “American goods” anyway ?

Barack Obama’s $825bn stimulus package seems to have raised howls of protests, especially in Europe for the “Buy American” clause. Dangers to free trade have been espoused. Similar concepts are being propagated in other countries as well – the other day Alan Sugar was waxing eloquently on “Buy British” (presumably from his company).

Without commenting on the implication on free trade, I am asking the question, What does “Buy American” or “Buy British” really mean ?

Does it mean buy from an American company ? If so what is an American company ? A company headquartered in the US ? A company that is listed in a US Stock exchange ? A company that has a majority of its shareholders as US entities or citizens ? A company that pays taxes in the US ? Its quite easy to construct a corporate structure that satisfies all of the above criteria without it being really viewed by the public as "American”.

A more common definition is “Manufactured in America”. But is it OK for all components to be manufactured elsewhere and simply assembled in America ? These days supply chains are global. Its very unlikely that every raw material or component is manufactured in the same country as the finished product is. What about industries like pharmaceuticals, where the mere manufacture of the drug is a small component of the value chain – the bigger component is the Research . Is it OK for all the research to be done in say Japan, and the drug formulation alone to be mixed in the US to be considered ‘American” ? Why is manufacturing sacred anyway? Its presumably because of the jobs it creates. But in the value chain of a product, jobs are created elsewhere too ; in research, in design, in management, in finance, in HR, etc etc. In many industries jobs created in these areas are more than the jobs created in manufacturing – the relentless onslaught of automation is probably the highest in manufacturing. So can just the act of manufacturing define the “citizenship” of the product or the company ?

Or is an “American” company one that has a majority of its workforce as American , a definition that would be more politically acceptable because of the focus on jobs. But this would again be conky – it would simply be a disincentive to American companies to go global. IBM has more than 70,000 employees in India . Does that make it any less “American” ? What about the composition of the Board or management ? Alcatel Lucent is a French-American company headquartered in Paris with a Dutch CEO. Does this make the legendary Bell Labs “un American” ? Or is it history - where the company was founded ?

This just goes to show that in business , there are no nationalities. All businesses are global. Economics has gone much farther down the road to create a world citizen than politics has. America does indeed have a “Buy American Act”. It was passed in 1933. In today’s business world, its an oxymoron.

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