Nightmare times to knock on guilty celebrity-endorsed doors… Jail for brand ambassadors! Hefty fine for companies! Monojit Lahiri investigates...

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Okay guys, the sublime, never-ending and blissful honeymoon that the celeb Brand Ambassadors elite club [read: Bollywood & cricket stars] enjoyed, pocketing insane mega-bucks by endorsing brands for companies, could have hit a killer road-block! The new Companies Bill 2008 proposes to toss any – or every – celeb into the slammer for up to three years, if found guilty of being party to propagate misleading claims and inducing customers to buy the product advertised. The companies involved are under the scanner as well. If found guilty, they will have to shell out a cool Rs.50 lakh [from a piddly Rs.1 lakh, earlier] in fine, for cheating and frauding the unguarded consumer. However, there is one bright spark. The Prosecution will have to ‘conclusively prove’ that the celeb endorser was aware he/she was making a false statement or representation – or that he/she did what he/she did, without ascertaining the facts.

The ad-frat, industry & celeb-management guys appear dumbstruck at what, they believe, is a ‘draconian’ move. Hot-shot photographer Atul Kasbekar leads the charge by going on record stating, “This is ridiculous! How on earth can a celeb be held responsible for worms in the brand of chocolate he endorses?!” Sanotsh Desai, head honcho of the Future Group, believes that the dice is – very unfairly – loaded against the celebs. “A penalty of Rs.50 lakh for the company and jail sentence for the celebrity is absurd.”

Anuja Chauhan, Executive Creative Director, JWT (whose debut novel The Zoya Factor is making big waves with the chick-lit diwanas) brings her own spin to the table. “I think its a good idea... specially if the brand endorser is endorsing the brand as himself... as in as Shahrukh Khan as opposed to as Rahul/Raj, or as Amitabh Bachchan as opposed to as Dadaji or whatever... and specially when the brand is targeting a lower or more rural SEC of consumer who truly take what the celebrity says to be the Gospel Truth. When some international brand comes to India and tries to woo me, I don’t know the brand, I just know the endorser. He’s the guy I totally believe in, he’s the one who introduces me to the brand and vouches for it. It’s like a friend introducing a stranger to you. So if the stranger takes you for a ride, you will go to your friend only, and say, yaar tooney toh mujhe duba hi diya...”

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Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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Tickling your ‘Dzire’

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Maruti’s sedan version of Swift took the auto industry by surprise, when it was launched in May. Priced competitively at Rs.4.49 lakh, Maruti Suzuki’s Swift Dzire was intelligently positioned for the aspiring middle class, who with their growing incomes wanted to upgrade to sedans, but were unable to do so, because of heavy price tags. Swift Dzire became an instant hit with as much as six months wait-list. It fit the bill of a stylish entry level sedan and not too heavy on the pocket either. This one made the cut with minimum marketing budgets!

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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IIPM set to beat economic slowdown
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Another ‘City’ ready to sleep!

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The irony in this case is that Circuit City’s closest rival Best Buy (who has also eaten Circuit City’s share of earnings) recently registered $2.15 billion in operating income, maintaining a surplus due to which many market experts are considering that City’s quagmire is a case of internal mismanagement. But then there is an another set of market experts who still expect many more retailers to stand in the chapter 11 list in times to come. Doron Levy, President, Captus Business Consulting, who belongs to the latter category, asserts, “We will see some more bankruptcies in the near future, but I really see consolidation on the horizon for many chains. Some have really strong business models, but are not managed correctly. I do have some specific retailers that I could foresee going into bankruptcy and eventually disappearing form the retail landscape all together.” Talking on the same lines, David .J. Livingston, retail consultant, DJL Research points out, “I think we will see an onslaught of closings among the small specialty stores located in shopping malls. This will result in the downfall of several real estate investment trusts which own these malls.” Though unfortunate, but retail is always affected in some or the other way from the roadblocks in the growth of any industry for that matter. So, the position of the retailers in the economic chain today is simply determined by what they sell. The slowdown in spending, though, would have an impact virtually across the horizon.

It’s not only retail outlets who are tightening their belts; online retailers are also joining the bandwagon as they are cutting their marketing and promotional budgets to stay profitable. Adding to that, online retailers are using tactics like free shipping to attract more buyers. And the decision seems wise enough. As per a study by Hitwise, the click-rate of online retailers is going down drastically. But then, market experts are still very much in favour of growth in online retail in the coming times. The annual holiday survey by Deloitte, clearly showed that Online spending is the 2nd best shopping destination for consumers after discount departmental stores. And the sheer power of online retailing gets more clear if we go by growth figures as National Retail Federation has announced a 2.2% projected growth in overall retail sales, which stands too low in comparison to the 12% projected growth in the online sphere. So, we can be sure of one thing – online retail will grow in times to come due to the simple reason that the fundamentals are quite compelling at the moment.

But you can’t be that sure of the growth in the overall retail sector as the prevailing turmoil may not end in the short-run. The only point favouring the growth of US retail industry is that there are many big retailers like WalMart, Tesco et al who are still in an expansion mode. Livingston emphasises, “Even though the economy has been difficult, there are still many retailers expanding. Wal-Mart continues to build stores with varied formats. Target is building, Tesco is building. Perhaps not at a fast pace, but they are.” But we can expect many more not-so-huge retailers going out of business in times to come. This will surely be one Christmas that they won’t forget in a hurry.

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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Investigates the paradox of why the bigger polluters will gain more in carbon trading in future!

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The emission reduction scheme is based on ‘cap and trade’ wherein the total annual emissions are capped and the market allocates a monetary value to any shortfall through trading. Businesses can exchange, buy or sell carbon credits in international markets at the prevailing market price. Over the years, it has become a source of earning revenue in developing countries. And how? Companies in this part of the world are typically less polluting (as they’re less ‘producing’) and the extra credits are sold to firms in developed countries. But strangely, in the future, it would surely be the more polluting companies that would stand to gain from this system of carbon trading.

But first, some more facts. This market is continuously growing and has been attracting huge investments. Investment banks (like Morgan Stanley, Merrill Lynch et al) have been active players and many carbon funds have been set up, with investors in those funds either planning to use the carbon credits that result from those investments for compliance purposes directly (e.g. with the EU-ETS), or simply as investments to sell. The ICECAP fund run by Natsource is an example of this. China (thanks to its large size, economies of scale in originations, favourable investment climate), which has quadrupled its number of projects in the pipeline from January 2007 to March 2008, dominates the global carbon market with 73% share in terms of transacted volume followed by India.

It is also a fact that India has gained a considerable share in the carbon trading market and companies have reaped in huge profits. Torrent Power, which recently switched over from a coal-fired power plant to natural gas (in a bid to reduce GHGs) earned 3.2 million carbon credits (this translates to whopping earnings of €54.14 million). In 2007, two projects of JSW Steel were awarded 5.4 million carbon credits (out of which one project was issued 4 million carbon credits). Examples like these will make it easy to understand why companies try hard to grab a part of the carbon credit market. It’s easy million dollar earning. As a matter of fact, India Inc. can exploit numerous business opportunities in developing low carbon technologies, an area which is expected to grow to $3 trillion per year by 2050.

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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Never say die... till U’re dead!

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As a matter of fact, the sector as a whole has also been marred by stringent RBI regulations which does not make life any easier for players like Omaxe. The central bank has increased interest rates to control inflation, besides restricting fund flows in it. “As the availability of funds from banking sector is being restricted for the Real estate players – both big and mid-size players are compelled to borrow from the High Net-worth Individuals (HNIs) at high interest rates of about 20% which is not helping their cause anyway,” explains Wadhwa. Omaxe and party have got another setback from foreign inflows too with the global crisis looming large over and with the investors keeping doors locked in the wake of the US financial crisis.

Nevertheless, Omaxe seems to have solved the cash-crunch puzzle to fund its mega projects. It has strategically opted for debentures to accelerate the pace of completion of its projects as Goel explains, “To mobilise large funds, Omaxe has taken the route of debentures for the consistent endeavour of completing all our projects on time.” Strengthening the financial standing of the company, Omaxe has also paid 60% of the total term facility of Rs.3.0 billion taken from Indiabulls Financial Services Limited. Also it has paid-up the entire outstanding sum on debentures issued to LIC Mutual Fund. Despite the fact that the term facility was for a period of 3 years, this was done to strategically prepay the loan in order to free up the equity. Omaxe is also planning to retire the outstanding of Rs.1.2 billion shortly. So in the face of such a cash crunch, is the plan of ‘going public’ in the pipeline too? “No,” confirms Goel. Issuing an Initial Public Offering (IPO) is one aspect of fund raising which the company wants to stay clear of looking at the currently volatile market. Moreover the company’s total debt of $600 million (which carries an annual interest rate of 16%), also has to be taken care of, as investors get restless by the day.

Omaxe has also unleashed plans to concentrate more on affordable housing projects in the price range of Rs.3 lakh to Rs.10 lakh to fight the dying demand in high-end housing. It has planned out investments totalling $20 billion to develop 10 lakh ‘affordable’ homes for low-income consumers. “The need for affordable housing is driving the real estate industry now. Our prefabricated township and affordable rate & reservation based allotment are the USP of the project making it a hot cake,” explains D. P. Srivastava, Vice President, Omaxe Limited.

So there you are – troubles indeed for Omaxe and others in the realty market, but one ray of hope is the mid and low-income Indians who may just be willing to spare their dimes for some value-for-money asset as Srivastava further justifies, “Omaxe will develop the corridor and build affordable housing units by using cost-effective technologies and using land-sharing techniques...” All is therefore not lost. With the RBI slashing CRR rate twice in quick succession, about Rs.600 billion is expected to be pumped into this sector. Troubles galore, but that ray of hope on the horizon may just keep Omaxe and party going. “Never say die... till you’re dead,” is the way to be for all in the sector; for now...

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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