My thoughts

On Thyaga's request

2005-10-08T20:12:00.000-07:00

My dear friend Thyaga wants me to write an entry for his blog (and if I can remember after a crazy week of assignments and company presentations) on the topic of going back to school after working for a while or something like that.

Economists say education has the signalling effect, i.e., it helps reducing information asymmetry between an employee and a potential employer. I pretty much agree with that view. But other than pure signalling aspect, I love the intellectual experience of coming back to school. Particularly, business school is the perfect place for expanding your horizon. You just learn so much in such a short time. That's probably the biggest change from work life. You do learn a lot at work too. But often you have no time to reflect and you get no time to understand the underlying principles. At school it is just the opposite. You are pontificating about strategy while being totally detached from how it is to run a real company.

Prof. Mintzberg claims that MBA education is completely flawed. He came to Sloan for a talk and embarrassed all of us with his vehement criticism of MBAs. There is some amount of truth to his assertion that MBAs learn business, but not management. We are taught different analytic techniques and how to think like a manager. But that does not make MBAs great managers. In fact lot of the so called "leadership" exercises in business school are absolutely ludicrous. I've met too many hyper-agressive MBAs who want to prove they are great in "teamwork" and "leadership" and who have absolutely no idea how to deal with people in the real world. The result is complete disasters in team projects. Too often MBAs would like to delegate the work to others and just do the packaging and presentation job at the end. Of course this is generalizing it too much, there are plenty of people with real leadership skills as well.

The notorious lack of depth amongst MBAs gets exposed in no class other than a course I'm taking in Political Economy. Few other Sloanies are taking the class. Unlike the typical "Strategy" class where hands would go up every minute and people would just blurt out some bullshit to get petty participation points, in this class the Sloan section is completely silent. The reason is simple, every class requires you to read two or three books in their entirety and the discussion is extremely deep. Typical MBA bullshit won't work there.

But that is not evidence enough that MBA education is useless. In fact a lot of people say that managers thrive because they know when to do a deep dive and when to just float in thin air. That is absolutely right--the ability to abstract is a great skill. But MBAs do need to learn to take deep dives at some point. Only a very few actually do. That may be the reason why only a very few MBAs become great leaders.

Forgetting the cynical perspective, I do enjoy my education thoroughly. Simply because MIT is such a great place to meet so many of the thought leaders--particularly in economics. And of course, MIT is a great engineering school as well. And a trip to Media Lab or other labs can get my inner nerd really excited.

Overall I'm excited about getting my degree and reducing informational asymmetry on my business skills. Come on, look at me, I'm a great business leader. Don't I've an MBA from a top school? Hoping that lot of employers take the bait.

Microsoft's mobile push

2005-02-14T06:07:00.000-08:00

Microsoft announced a deal with Nokia or putting windows technology in Nokia phones and making it easier to download digital music from PCs to mobile phones. Another news on PR Newswire:
"Today at 3GSM World Congress 2005, Microsoft Corp. (NASDAQ:MSFT) will demonstrate how it is delivering bottom-line results to operators and delivering dynamic software solutions in collaboration with the mobile industry. Microsoft will unveil a study that concludes that Windows Mobile(TM)-based devices increase mobile operators' average revenue per user (ARPU) by 37 percent, resulting in a 93 percent average margin per user (AMPU) uplift.* Continuing its momentum in the mobile industry, Microsoft will also announce plans to develop a series of Windows Mobile-based devices with Flextronics Corp., one of the world's largest mobile phone manufacturers. Microsoft also announced the general availability of the Microsoft(R) Connected Services Framework, an integrated software solution that enables operators to accelerate the creation and delivery of profitable communications services.

(Logo: http://www.newscom.com/cgi-bin/prnh/20000822/MSFTLOGO )

"Microsoft is providing smarter, advanced mobile solutions and creating business models that help mobile operators generate new revenue streams," said Pieter Knook, senior vice president of the Mobile and Embedded Devices Division and Communications Sector Business at Microsoft. "Microsoft's innovative and familiar software solutions, such as the Windows Mobile platform, enable operators to offer products and services that encourage a broader range of customers to use higher-revenue-generating smart devices, enhance the user experience and build subscriber loyalty."

Windows Mobile Drives Increased Mobile Operator Revenue"

India waking up to Broadband finally

2004-10-17T09:44:00.000-07:00

Atimes write:

Broadband has been defined as an always-on data connection supporting interactive services including Internet access within a download speed of 256 kbps per subscribers.

"By the end of year 2010, the policy aims to target 20 million broadband subscribers and 40 million Internet subscribers," Maran said.

Smart cards for India

2004-10-02T19:57:00.000-07:00

Asia time reports that smart card business in India could grow as much as $6 billion in next few years.

Why India Leads in Software/Knowledge Business?

2004-09-05T20:11:00.000-07:00

A very interesting article on rediff by Rajiv Malhotra:

To explain why educated Indians are amongst the best knowledge workers in the world, the common reason given is that the British taught us English, science and governance. But under this theory, all former colonies, such as Kenya, Uganda, Egypt, Zaire, Bangladesh, Pakistan, Sri Lanka, Trinidad and Myanmar should be suppliers of knowledge workers on par with India. Few Indians have the courage to articulate that the reason is partly because of India's long cultural traditions that emphasize learning and inquiry, including the openness fostered by its pluralistic worldviews.

In fact, Indians were exporters of knowledge systems and knowledge workers throughout the Middle East and Pan-Asia for centuries prior to colonialism. Arab/Persian records indicate that many hospitals in the Middle East were run by Indian doctors and that Indian scholars ran their universities. Indians were chief accountants in many Persian courts. Indian mathematics went via Persian/Arab translations to influence European mathematics.

Furthermore, Buddhists took Indian knowledge systems to East and Southeast Asia, including medicine, linguistics, metallurgy, philosophy, astronomy, arts, martial arts, etc. Indian universities (such as Nalanda) attracted students from all parts of Asia, and were patronized by foreign rulers. All this is well appreciated by scholars in East and Southeast Asian countries but is hardly known to Indians.

Indian corporate executives are playing a key role in charting India's future through knowledge based industries. Therefore, it should be important for them to sponsor an honest account of India's long history of exporting both its knowledge workers and complete knowledge systems. This historical account is important in reinventing India's non-innovative education system and repositioning its brand. Hence, Indian-Americans must question the colonial discourse which promotes the view that 'anything positive about India was imported from elsewhere.' The impact of such skewed discourse on Indian children is pertinent and must be examined.

Bottom of the Pyramid (BOP)

2004-08-19T15:45:00.000-07:00

Economist's take on Wharton Professor C. K. Prahlad's BOP concept:

Mr Prahalad reckons that there are huge potential profits to be made from serving the 4 billion-5 billion people on under $2 a day—an economic opportunity he values globally at $13 trillion a year. The win for the poor of being served by big business includes, he says, being empowered by choice and being freed from having to pay the currently widespread “poverty penalty”. In shanty towns near Mumbai, for example, the poor pay a premium on everything from rice to credit—often five to 25 times what the rich pay for the same services. Driving down these premiums can make serving the BOP more profitable than serving the top, he argues, and points to a growing number of leading firms—from Unilever in India to Cemex in Mexico and Casas Bahia in Brazil—that are profiting by doing precisely that.

BOP till you drop

But to be profitable, firms cannot simply edge down market fine-tuning the products they already sell to rich customers. Instead, they must thoroughly re-engineer products to reflect the very different economics of BOP: small unit packages, low margin per unit, high volume. Big business needs to swap its usual incremental approach for an entrepreneurial mindset, because BOP markets need to be built not simply entered. Products will have to be made available in affordable units—most sales of shampoo in India, for example, are of single sachets. Distribution networks may need to be rethought, not least to involve entrepreneurs from among the poor. Customers may need to be educated in how to consume, and even why—about credit, say, or even about the benefits of washed hands. The corruption now widespread in poor countries must be tackled (about which Mr Prahalad has penned a particularly useful chapter).

There are plenty of sceptics. Are the opportunities for profitable product re-engineering really as common as Mr Prahalad thinks? How much can private firms accomplish given inept or corrupt governments in many poor countries? “There is much less scepticism now than when I first started talking about the BOP,” retorts Mr Prahalad. What the leading firms are grappling with now, he says, is not whether there are profits to be made, but how to serve the BOP on a big enough scale, and how to transfer what works from one part of the world to another.

Another challenge will be to persuade development experts to support a profit-driven strategy. Mr Prahalad worries that firms may be deterred from BOP strategies by fear of attracting criticism from activists. If a large international bank were to start lending to the poor at interest rates, reflecting higher risks and start-up costs, of say 20% (compared with around 10% in rich countries), “the whole anti-globalisation lobby would probably be against it. Yet the alternative is for the poor to borrow at 500% from a money lender. Whose side are the activists on?” If you are on the side of the poor, he says, “surely you need to help get rates down from 500% to 20%. After that, you can work on getting them from 20% to 10% like in the rich world.”

India is Innovating

2004-08-17T08:02:00.000-07:00

On the issue of innovation in India again. Interestingly, though software exports are generating highest revenue for India at this moment, it's the bio-pharma sector in India which is investing more money in R&D than any other sector. This is from the atimes.com article:

Indian pharma companies are going for alternative business models to draw on competition and opportunity. They have shifted from business-driven research to research-driven business. So much so, in fact, that Indian pharma companies topped drug filings with the US Food AND Drug Administration (FDA) in 2003, having filed a total of 126 Drug Master Files, accounting for 20% of all drugs coming into the US market, higher than Spain, Italy, Israel and China. Of the 108 abbreviated new drug applications pending approval from the FDA in February, as many as 52 were patent challenges, and nearly half of these were for first-to-file (180 day market exclusivity) applications.

India's biotech sector itself is expected to generate $5 billion in revenues and create over a million jobs in the next five years, according to Ernst & Young's 2004 "Progressions" report. As the companies focus on accelerating productivity, collaboration is the way forward for several US and European companies faced with a resource crunch. With its abundant high quality/low cost technical manpower, India is emerging as a partner of choice.

The emergence of Indian pharma giants, taking an active place in global R&D fields, has also helped. Indian companies have developed manufacturing processes for eight of the world's top 10 blockbuster drugs.

Chinese Rural Sector Income Growing at a Rapid Pace

2004-08-16T19:18:00.000-07:00

Reverse Brain Drain

2004-08-11T18:14:00.000-07:00

It has started happening. Foreigners are moving to India for jobs.
http://www.atimes.com/atimes/South_Asia/FH10Df04.html

Innovative India?

2004-08-10T19:11:00.000-07:00

I've always wondered why are there so many great software engineers from India and yet no great software product developed by an Indian company. Indian software designers and architects have major contribution in almost every big software product we know of--be it Windows XP, Linux, Oracle Database or IBM Websphere Server. And many Indian engineers have several patents to their credit. It is not trues that Indians are not very innovative and are merely highly paid coolies as some people have suggested. This article on rediff discusses this problem well: http://us.rediff.com/money/2004/aug/10das.htm

I feel it is high time that some innovative and risk-taking Indians get together to create the next big innovation. After all we cannot hope to become a developed country ever by just doing BPO.

Here is an article which has hope written all over it:
http://us.rediff.com/money/2004/aug/10ariban.htm

Spontaneous Order & Hinduism

2004-08-08T18:40:00.000-07:00

While post-independence India has often followed socialistic policies and has often been accused by the west for having the so called hindu rate of growth, it just strikes me that socialism and hinduism are not at all compatible philosophies. For the last fifty years India's approach to economics has been anything but Hindu. In fact I'll argue that socialism and its relative communism are typically western phenomenon and are products of minds used to monotheistic religions.

Hinduism grew out of spontaneous order amongsts believers of many sects and cultures that existed in ancient India. In fact it is not even a religion in the western sense of the word. I like this definition of Hinduism -

Religion to the Hindu is the native search for the divine within the Self, the search to find the One truth that in actuality never was lost. Truth sought with faith shall yield itself in blissful luminescence no matter the race or creed professed. Indeed, all existence, from vegetation and beasts to mankind, are subjects and objects of the eternal Dharma. This inherent faith, therefore, is also known as Arya/Noble Dharma, Veda/Knowledge Dharma, Yoga/Union Dharma, Hindu Dharma or, simply, the Dharma.

Hinduism is not tied to definite set of philosophic concepts. In fact, over the ages the popularity of certain philosophic concepts often followed a free market economy behavior. And as and when some concepts became popular they got integrated into the Hindu religion. The best example is perhaps Budhism. Started off as a protestant relegion to Hinduism, it later got integrated into Hinduism with Buddha given a place as one of the ten Avatars of Vishnu.

On the contrary monoethiestic relegions believe in centralized control with set hierarchical structure and rules. There is absolutely no scope for spontaneous order. It is not surprising that the west has been the birthplace of socialsm and its extreme-communism.

It was the Nehruvian borrowed-from-the-west socialism that led to the extremely slow GDP growth for the first thirty years after independence. In my view socialism (or communism) is antipathic to the Indian civilizational traits. Forcing it on Indians have done enough harm already. And calling it "Hindu rate of growth" is the biggest irony.

Some pictures I took in Yellowstone National Park

2004-08-07T13:40:00.000-07:00

On our road trip from San Francisco to Boston, Sanchayita and I stopped by at Yellowstone National Park for couple of days. Here are some of the most fascinating pictures we took in Yellowstone.

Emerald springs

2004-08-07T11:25:00.000-07:00

Emerald Springs, Yellowstone National Park

Spontaneous Order

2004-08-02T11:43:00.000-07:00

Competition means decentralized planning by many separate persons - Frederich A. von-Hayek (1899-1992)

F A Hayek popularised the concept of Spontaneous Order--the order that is a result of human action but not of human design. The order of the clock, or the army or the firm is a result of human design. But the order of the market, language, law, and morals is a result of purposive human action and not of a design of a human mind. Hayek contended that the most critical institutions of a good society are the result of human action but not of human design.

This seemingly simple concept has profound impact on society and economic future of the world. "[T]he great moral conflict… which has been taking place over the last hundred years or even the last three hundred years," according to Hayek, "is essentially a conflict between the defenders of property and the family and the critics of property and the family," with the latter comprising an alliance of socialists and libertines committed to "a planned economy with a just distribution, a freeing of ourselves from repressions and conventional morals, of permissive education as a way to freedom, and the replacement of the market by a rational arrangement of a body with coercive powers."

For over forty years India followed extremely socialistic economic policies. Till early nineties Indian economy was an economy of subsidies, high rate of inflation and centralized planning. It caused havoc with our country and by 1990 India was almost bankrupt. Socialists and communists in India and elsewhere still refuse to accept the truth and believes in continuing these policies.

Usually inflation is caused by government pumping more money into the economy to pay for the subsidies. And inflation hurts the poor more than the rich. Hayek explains this beautifully, "That the order in which a continued increase in the money stream raises the different prices is crucial for an understanding of the effects of inflation was clearly seen more than two hundred years ago by David Hume—and indeed before him by Richard Cantillon. It was in order deliberately to eliminate this effect that Hume assumed as a first approximation that one morning every citizen of a country woke up to find the stock of money in his possession miraculously doubled. Even this would not really lead to an immediate rise of all prices by the same percentage. But it is not what ever really happens. The influx of the additional money into the system always takes place at some particular point. There will always be some people who have more money to spend before the others. Who these people are will depend on the particular manner in which the increase in the money stream is being brought about. It may be spent in the first instance by government on public works or increased salaries, or it may be first spent by investors mobilizing cash balances or borrowing for the purpose; it may be spent in the first instance on securities, on investment goods, on wages or on consumer's goods. It will then in turn be spent on something else by the first recipients of the additional expenditure, and so on. The process will take very different forms according to the initial source or sources of the additional money stream; and all its ramifications will soon be so complex that nobody can trace them. But one thing all these different forms of the process will have in common: that the different prices will rise, not at the same time but in succession, and that so long as the process continues some prices will always be ahead of the others and the whole structure of relative prices therefore very different from what the pure theorist describes as an equilibrium position. There will always exist what might be described as a prices gradient in favor of those commodities and services which each increment of the money stream hits first and to the disadvantage of the successive groups which it reaches only later—with the effect that what will rise as a whole will not be a level but a sort of inclined plane—if we take as normal the system of prices which existed before inflation started and which will approximately restore itself sometime after it has stopped."

It is clear that the additional money pumped into the system will fall into the hands of the rich faster than the hands of the poor.

Towards a free nation

2004-06-28T22:55:00.000-07:00

Everybody knows that India is a free country or at least we Indians claim that it is a free country. But did you know that in terms of economic freedom we rank towards the bottom of the chart? In 2001 India was ranked 73 out of 123 nations according to Economic Freedom of the World (EFW) index. Kind of depressing. Isn't it? Some will question whether we really need economic freedom to be prosperous. Interestingly, there is a direct correspondence between economic freedom and long term growth of a country. (Check this paper if you are really interested.)On one end of the horizon are communist countries where almost every economic decision is made by the government on behalf of its citizens and on the other extreme are free economies like that of Hong Kong.
To measure EFW of a country they have looked at the following aspects:
i) Size of Government: Expenditures, Taxes, and Enterprises - In simple terms, if a government spends more it is substituting its choice over personal choice. People are usually spending higher taxes and government is deciding what to do with the money. In an extreme case government will take away all your money and decide what you need to survive, what you should wear and what you should eat (More like a communist country). Clearly, economic freedom reduces as government size increases.

ii)Legal Structure and Security of Property Rights - Freedom is useless if one person's exercise of his freedom curbs another person's freedom. You'll not feel secure about buying property in a place where local thugs can just come and throw you out of your property. So security of property rights (or rights to anything you legally buy) protected by the rule of law is essencial for increasing economic freedom. In states like Bihar in India where trains get looted often and extreme lawlessness prevails, there is little economic freedom available to people.

iii) Access to Sound Money - Milton Friedman and other monetarists have argued that inflation is a monetary phenomenon usually caused by government printing more money to meet its expenditures. One way to look at inflation is that it is a mechanism by which government expropriates citizen's property by devaluing it using newly printed money to meet its own expenditures. In a way, government is curbing citizen's freedom to use his assets to buy newer goods. In countries where inflation is high people will often attempt to put their hard earned money in foreign banks where inflation is low and predictable. Often governments attempt to limit such activities. For instance, till recently Indians were not allowed to maintained huge bank accounts in foreign countries or invest in foreign stock markets. A country with higher economic freedom will have low inflation and will allow citizens to invest their money in any foreign country.

iv) Freedom to Exchange with Foreigners - Protectionist measures such as tariffs and quotas are mechanims using which governments may try to curb citizen's economic freedom to make certain groups happy. Recent backlash against outsourcing in the US is an example. Similarly, attempting to limit foreign investments in Indian businesses hurts our economic freedom.

v)Regulation of Credit, Labor, and Business - More regulations means less freedom. Whether we own a business in India or not, we all know how difficult it is in India to start a business. There is a nice article on this on BBC by Prof. Kaushik Basu (a Cornell Economist). It takes 11 days to start a business in Hong Kong (which by the way ranks 1 in Economic Freedom of the World index). In India, it takes 88 days to start a new business! But what I found really amazing in his article is this piece: "But the real catch in India is not with starting or running a business. It is with getting out of it. If a firm becomes insolvent, in Hong Kong it takes one year to clear all formalities and close the firm; in Singapore less than 7 months; and in India a little over 11 years." No wonder we rank so poorly in terms of economic freedom. According to Prof. Basu's estimates just taking care of little things like this will push up country's annual growth rate to 8%-9%.

There are other people in India who are thinking on similar lines. I just joined this organization called Center for Civil Society which aims to promote economic freedom and believes in Hayek's 'spontaneous order' theory. More on this in my next post..