Building Blocks Of Market Beating Value Creation

How do companies counter and mange the forces which are so structured that they naturally have profit reducing tendencies? Profit here is the economic profit i.e. what is left over from the net operating profit after reducing the cost of capital. For it is this economic profit that truly creates value in businesses. What we are looking to analyze today is – what separates consistent value creators from those which are not able to?

Macro Strategy Input – Global Portrait of Household Wealth

“Wealth is one of the pillars of the economic system – driving economic growth, the accumulation of capital, trends in consumption, asset prices, and specific industries such as healthcare and banking. Although the very top wealth holders attract a great deal of attention, there is a shortage of reliable data and research on the overall pattern of household wealth.” Credit Suisse has been trying to fill this gap through global survey. In their latest 2012 survey they point out:

What Can CXOs Expect Of World Economy in 2013 & Beyond?

Business leaders (CXOs) take a number of decisions – financial & non-financial – based on their expectations of the economic growth expected in their country of business and also how the world economy is likely to fare, given the interconnected world of today. For multinationals the global economic view becomes much more important.

Decisions could vary based on their views of economic growth (GDP) and its consequent impact on interest rates, exchange rates, freight rates, commodity prices and the like.

So what are the current expectations based on which leaders may want to take a view as regards their business?

Where Will The Next Mega-Rich Come From?

The focus is always the middle-class buying power when talking about emerging markets. But what about those emerging into the mega bucks league? Where will they come from and what will they want the world around them to be like?

Are Business Leaders Ready For The Power Tilt?

There are five key power shifts that are in progress according to business adviser, author and speaker Ram Charan. He says that most global business leaders are not preparing/prepared for this ’tilt’ and advises them to:

• “Rethink reliance on core competence.  Successful leaders of the future will not necessarily build on their core competencies or stick to their knitting. They are willing to identify long-term, large-scale opportunities and grow the capabilities they need to turn them into reality.
• Get ready for strategic bets. Succeeding in a tilted world requires that you know when it’s the right time to make a big shift in direction or resources  for offensive or defensive reasons. You’ll need courage to make the call amid ambiguous information and toughness to withstand the push back you’re likely to get for such decisions.
• Fight the short-term beast.  The biggest challenge for publicly traded companies in the North is to think long-term while keeping Wall Street happy in the short-term.  It can be done, provided you communicate well with the board and the investment community and deliver on the short-term commitments that build toward the future.”

Why is he recommending such a dramatic shift in thinking? What are these shifts he is talking about?

Where Will India’s Next Technology Revolution (Tech 2) Come from?

Beyond $100 Billion

• The start ups of the 1980s in Indian technology industry have grown now to a strong $100 billion industry primarily riding the outsourcing wave they invented, if I may.
• It created jobs for over 3 million and created another 10 million collateral jobs.
• It led to India’s balance of payment position improving which had almost become bankrupt in early 1990s.
• Not only Indian firms but many multinationals now operate their outsourcing and technology operations from India.
• The cultural change brought by the IT companies has rubbed off on other industries which also have become increasingly export competitive and many noted overseas acquisitions have happened.
• The boom in the Indian real estate industry is largely attributed to the IT industry which has seen wealth of many individuals including those of farmers improving substantially (although in a country like India this has its own flip sides too).
• The wage cost advantage over this period has shrunk and there are greater barriers being set up on outsourcing, which moves jobs out of the respective countries from where these contracts originate.
• The margins have shrunk, business shift to other locations like Philippines etc. have also happened. Business in its original form is more a commodity now.
• Changes in technology and efforts to move up the value chain have kept the excitement going, but has not been good enough.

To step up the industry growth and the resultant rub off on the economy, the impact of which can be as large as outsourcing, India needs a Tech 2 revolution producing new generation of large tech firms.

So what would be the next accelerator?