Reva and Tata’s electric fortunes head in different directions

India auto’s green credentials are in the news. Within days of each other, Reva announced plans to introduce electric cars to India and Tata threatened to end ambitions to produce electric cars in the UK.

G-Wiz!

Banglore’s Reva Electric Car Company will invest R’s 300 million (US$ 6.1 million) to build the worlds largest factory for low-cost, electric cars. With capacity of 30,000 vehicles per year, production begins Q1 2010.

Tata stalls

Contrast with Tata Motors who threaten to scrap plans to build the Vista electric car in the UK if it does not receive a £10 million government loan soon. The relatively small amount – part of UK governments £2.3 billion car assistance package, that Tata qualify for through ownership of Jaguar and Land Rover marques – is still to be approved and Tata by all accounts are losing patience,

Public power points

Questions remain about Reva economics, it sells at R’s 350,000 (£4,650) in India and £7,500 in the UK, under the G-Wiz brand. This makes it nearly four times the cost of R’s 100,000 Nano. While cost of running is less – Reva is powered by lead acid batteries (80 KM per charge) or litium ion technology (120 KM per charge) – the price difference must be a concern, as is the number of 15 amp public charging points available to buyers.

Low carbon, low cost

With just 20% of the number of components found in a petrol driven car Reva expect to be able to make major savings as production increases.

Despite selling just 3,000 vehicles since 2001 company owner Chetan Maini has big plans, the target is to sell 8,000 vehicles in year one, once the factory opens. His long term plans are bigger, referencing President Obama’s range of “green” subsidies he optimistically predicts that electric cars will outnumber conventional models in just 15 years.

With Nano, Reva and perhaps Vista India is set to take the global lead in the low-cost auto design and production race.

New focus on affordable housing as government seeks to end slum living

Indian government unveils ambitious plans to end slum living in just 5 years. With estimates suggesting more than 60 million Indians live in urban slums government has increased investment in housing. Developers are keen, switching their focus to affordable housing in an effort to counter act the property slow down, but skepticism remains.

Making good on their election pledge, Congress party finance minister Pranab Mukherjee has allocated near R’s 40 billion (£506 million) to create new affordable housing for slum dwellers.

Financial Times 9/6/09

Property sector focus shifts to affordable living

This move coincides with a change of focus in the property sector; oversupply in the premium segment has led to realization that unmet demand for affordable living provides revenue opportunity. Government tax breaks and a McKinsey & Co estimated shortfall of more than 25 million low-cost houses means a potentially lucrative market.

So the investment and the means are in place but is this enough?

Jobs and housing

Signs are that cheaper housing will be built away from cities; freeing space for more profitable future development, this creates a problem. Slums arise due to a need for the poorly paid to live affordably close to where they work. Relocating them from cities may deprive them of the jobs they rely on. Therefore jobs as well as housing need to be created away from the cities, it begins to sound like new cities are required?

Deepak Parekh, chairman of HDFC Bank recently wrote to his shareholders, raising questions about plans for low-cost housing. He stresses that affordable housing needs to, “make economic sense in terms of proximity to work place”.

Next wave of urban migrants

In addition, as urbanization increases, more urban migrants will descend on major cities looking for work. Steps need to be taken to ensure that new slum communities do not replace old ones.

Property developers also have to be willing to stay the course. The true test will come when India’s property market bouncers back, will developers carry on building lower margin affordable housing or switch to cash in on housing for the middle class and elite?

Wonderful joke?

Those set to benefit aren’t convinced. Jockin Arputham, president of the National Slum Dwellers Federation sums up their opinion,  “This kind of political statement that the government delivers is not the best. Some of my slum people told me: ‘What a wonderful joke!’ If he had said 20 years, I would say it is worth doing.”

India, now the fourth biggest mobile advertising marketplace

April 2009 figures show India to be the fourth biggest market for mobile ad requests. Further proof that mobile phones rather than computers are the primary means of accessing the internet.

AdMob, the industry-leading mobile advertising and monetization solutions company have reported that India is the fourth biggest market place for mobile advertising consumption. April 2009 figures show that only the US (47% share of global ad requests) and Indonesia (10.8%) beat India’s share of 5.9%, equivalent to over 447 million requests.

Emerging market impact

In addition to Indonesia and India, the Philippines also make the top 5 (along with the UK). AdMob conclude that emerging markets are ripe for mobile exploitation due to the fact that mobile phone operators offer low cost packages. In addition, the standard of english literacy is high and fixed-line broadband extremely low.

Marketing effectiveness

For brands looking to cash in on the next generation of consumers, emerging markets play a vital role. To reach them the mobile phone is the only viable digital medium. With 35 – 40 million Indians accessing the internet from mobile devices, mobile internet marketing is set to become an increasingly important marketing channel.

Can India become an affluent society in one generation?

This is the question that provides the basis for a new, wide-ranging report published by the Emerging Markets Forum (EMF). While there is an element of crystal ball gazing the report provides a different angle to most studies.

The EMF claims that their report is unique due to three reasons, 1) unlike the majority of studies on India, this report is not a vertical look at a single subject, it looks broadly across interconnected issues , 2) the report takes a 30 year view of the policy debate and 3) the focus is on providing a projection of what could be, not what will be.

10% growth dependent on four factors

To hit its target the report suggests that India must increase year-on-year growth to near 10% over the period of a generation. For this to happen there must be regional peace and open and free economies. Economic stagnation must be avoided and the implications of growth on resource and the environment must be managed.

Change in role of government

A key theme is governance; the report concludes that India has grown despite government and not due to it. An important shift must take place, where government is not the decision maker and implementor but a facilitator and regulator that ensures open competition and business friendly market conditions.

The seven inter-generational issues

To realize its potential, seven inter-generational issues are identified that need immediate attention:

1. Tackle disparities and achieve inclusive growth.

2. Dramatically improve the quality of the environment.

3. Eliminate infrastructure bottlenecks—Create a competitive edge.

4. Improve the delivery of public services—Create functioning cities for sustaining growth.

5. Renew the focus on education, technological development and innovation—Keys to sustaining improvements in competitiveness.

6. Launch a revolution in energy—Ensure security and competitiveness.

7. Foster a prosperous South Asia and become a responsible global citizen—India, its neighborhood and the world.

To read the complete report, “2039: An affluent society in one generation”, click here.

Air India has 30 days to shape up or face possible collapse

Crisis hit Air India and India’s government are finally negotiating a financial bailout. The carrier – that suffered US$ 875 million in losses during the last fiscal year – has 30 days to submit a restructuring plan to government before any form of investment will be made.

Predictably, government has had to step in to prop up the carrier. Already struggling due to factors affecting all airlines, a bloated workforce and spiraling debt is making it near impossible for Air India to meet day-to-day operational costs.

Competition from leaner carriers

Following years of virtual monopoly, and restricted international competition, Air India is under pressure from leaner carriers. Share of passenger traffic has fallen from 38% in 2004 to 15%. Exacerbating the problem, the carrier has an employee-to-plane ratio of 210 employees, compared to industry average of about 150. In its current state Air India is no longer viable.

Leaner structure, lower costs

While Prime Minister Manmohan Singh is willing to approve investment of US$ 2 billion, it is contingent on a major business overhaul. Given Singh’s decisive national election win, he may be tempted to privatize the carrier or even let it collapse. Although unlikely, newfound power gives him leverage over management and he must hope unions.

Praful Patel, India’s aviation minister, has warned, “Air India must shape up, become leaner and trimmer, and also must put its best foot forward”.

“Harsh decisions”

Chairman and Managing Director, Arvind Jadhav is trying to prepare his 31,000 staff members for new realities, “Considering the critical financial state of the airline, we should all be prepared to face the impact of harsh decisions that will be required to be taken in the coming weeks to meet the current difficult financial situation.”

Management want to cut annual employee costs by more than 17%, or US$ 100 million, and have already asked senior staff to go without July salaries. The carrier is also looking at how to improve employee productivity and eliminate restrictive working practices. A committee has been set up to review existing wage agreements with unions. Despite Jadhav’s hopes, the Jet Airways’ experience of last year makes a union – management stand off likely.

Government is also reviewing the carrier’s order for 100 new Boeing and Airbus aircraft. Changes at board level can also expected as Delhi seeks long-term change.

Remarkable failure of management

While Air India stress that the industry at large is in trouble and company spokesman, Jitendra Bhargava pleads, “Tell me, which airline is making profit, you can’t view Air India in isolation, right?”. Industry analysts aren’t convinced by the argument.

Kapil Kaul, chief executive of Centre for Asia Pacific Aviation blames poor management and the fact that the carrier has not evolved to meet newer competition. Kaul comments, “Air India is an example of a remarkable failure, (it is) still an iconic brand, but unfortunately it has a reputation which is of an unreliable and shoddy airline.”

Drastic changers are required. The airline, its staff, government and the unions must work together – and quickly – to reach a viable solution if Air India is to remain in the skies.

Economic growth damaging Indian well-being

Research shows that India is one of the happier countries on the planet. In 35^th place of 143, India scores well, beating the likes of the UK, Russia, Singapore, US and Kong Kong. Despite this, India’s score is on the slide, the report concludes that economic growth is damaging overall well-being.

The Happy Planet Index (HPI), calculated by the New Economics Foundation (NEF) ranks countries by combining average life expectancy, life satisfaction and the rate of natural resource consumption. NEF, an independent “think-and-do tank” aim to improve quality of life by promoting innovative solutions that challenge mainstream thinking on economic, environment and social issues.

Growing economies, lower scores

Proving that “happiness” is damaged by economic development, HPI shows that fast-growing economies China and India were each happier and ‘greener’ two decades ago.

India’s rapid and aggressive economic growth means that given the criteria for scoring, Bhutan (17^th), Sri Lanka (22^nd), Pakistan (24^th) and Bangladesh (31^st) all rank higher in South Asia.

Of 18 sub-regions, South Asia ranks 6^th for HPI. Latin America – with 9 of the top 10 countries – tops the list, followed by South East Asia, North Africa and China.

New development model

NEF claim that HPI provides a better way of analyzing the success of a country than through standard measures of economic growth.

NEF researcher, Saamah Abdallah comments, “HPI suggests that the path we have been following is, without exception, unable to deliver all three goals: high life satisfaction, high life expectancy and one-planet living.” He goes on to say, “Instead we need a new development model that delivers good lives that don’t cost the Earth for all.”

To read the full report click here.

Randomness of late monsoon raises Indian economic concerns

As non-agricultural sectors grow reliance on a bumper harvest has reduced, however, lateness of this year’s monsoon is casting a shadow over the economy. Two thirds of India’s population still relies on farming for a livelihood and agriculture accounts for nearly 20% of the countries GDP.

A good harvest strengthens the rural economy as farmers make more money. A poor or late harvest means weddings – an expensive affair – and key purchases are put off to next year, damaging demand. A poor crop would also drive up – already high – food prices. The longer the country waits for the cooling effect of rain the more energy is consumed due to air conditioning, potentially leading to a widening of India’s power deficit.

Direct impact on stock market

In 2005, India’s Centre for Mathematical Modeling and Computer Simulation revised their forecast, from April prediction of 22% above normal rain, to 34% below normal, in doing so the Sensex dropped 77 points on the news.

Concern mounts

This year, Government has been bullish, claiming in reality a delay wont make much difference to the economy. However, news that rainfall from June 1st – June 17th was 45% below normal, has led to speculation that the Prime Minister’s Office is closely following the situation.

V.K. Sharma, head of research at Anagram Stockbroking believes there will be an effect if the rains stay away,  ”Delay in monsoon will play the spoilsport and may hit GDP by at least 1 to 1.5 percentage points.“

FMCG’s likely to be hit

FMCG companies sell about one-third of their total products in rural areas, a fall in rural income has an impact. Nitin Paranjape, CEO and MD of Hindustan Lever is in no doubt of the monsoons importance to his business and the country, “We are watching this space and listening to what the weatherman has to say everyday. Subject to the (behaviour of) monsoon in the next few months, we should see good growth for FMCG sector. The business depends on monsoon, and the country depends on the monsoon”.

Until India upgrades agricultural infrastructure and expands irrigation systems, India’s economy, its businesses and farmers will always be at the mercy of the monsoon. India is looking to the skies.

Indian mobile phone proliferation slows

India’s booming mobile phone market, a symbol of Indian development has peaked. Subscriptions sign up – growing at 40-50% over the last three years – is likely to hit single digit growth in three years time. In addition, three key indicators show that profitability will be hit and a period of consolidation is likely.

Growth and revenues slows

Gartner Inc, a technology and market research company expect India to have 770 million mobile subscribers by 2013, up on current number of 450 million, an average growth rate of 14.3%. Reflecting this slowdown, revenues will grow at average 12.5% to around US$ 30 billion by 2013.

Passing the peak

2008 growth appears unlikely to be repeated, subscriptions jumped 50% and revenues grew 24% over 12 months. While numbers are likely to remain strong, rates of growth are expected to slow from now on.

3 key indicators set to affect profitability

Although growth is still healthy, three indicators – churn rate, proportion of pre-paid subscriptions and average billing rates – suggest profitability will be hit.

Churn rates will increase from current levels of 53.2% to 59.6% by 2013, making harder for telco’s to hold on to existing customers. Postpaid subscription market – most profitable service – is set to decrease from 7% of overall market to just 4% during the same period. Despite 3G and other value added services hitting the market, most new subscriptions will come from poorer rural India; this factor will inevitably drive down average bill sizes.

Consolidation

While there are currently 14 operators in the market, tougher conditions are expected to lead to sector consolidation. Gartner expect this number to drop to between 8 and 10 in two years. They also conclude that in the long term the market will be able to support just 5 major operators. Expect a phase of acquisitions.

McDonald’s set the standard for India market entry

Cultural sensitivity isn’t always a quality associated with McDonald’s. Rightly or wrongly (depending on your point of view) the brand has been labeled as uncaring, unhealthy and imperialistic. However, in India it appears that their market entry strategy has earned them a number of fans and many Rupees.

Setting the standard

Over a conversation with an Indian retail expert our attentions turned to western retail brands and India market entry. My friend was very clear in terms of which brand had managed the transition best, without having to tinker with their core brand values or the fundamentals of their business; McDonald’s was the clear winner.

Products and Price

Through use of a joint venture arrangement they have successfully developed products and a pricing strategy to suit the local market, based on the fact that they have 160 restaurants across India you have to say it works.

Product: The McDonald’s menu in India contains no beef or pork, there is also an extensive vegetarian menu. Vegetarian and non-vegetarian food products are kept separate throughout the sourcing, supply chain, cooking and serving processes.

So while you can’t buy a hamburger or Big Mac, you can buy a McAlloo Tikki or a McVeggie burger.

Price: A price point of around – equivalent of – 20p for a burger means that McDonald’s has mass market appeal, making it a viable option for the majority of the population, not just an expensive treat for the more affluent.

McDonald's India

Riding India’s demographic wave

While McDonald’s know older generations brought up on a different cooking style are unlikely to chose to eat from their menu, India’s young demographic allows the company to concentrate on attracting younger consumers, eager to try newer food concepts.

Local knowledge

While some retailers see joint ventures as unsatisfactory, McDonald’s have benefited by tapping in to local knowledge and developing cultural understanding. Following four years of preparation and twelve years of trading, McDonald’s have established the perfect business at the perfect time, without compromising their core brand.

Mumbai malls fail taxi driver test

A quick test to find out whether any single mall in Mumbai stands out from the rest. Not scientific by any means but feedback to the question, “Of all the shopping malls in Mumbai which one should I see”, produced some interesting comments, one in particular was more interesting than others.

The theory

My theory is in a booming market full of eager retailers looking to expand and consumers willing to spend, building profitable shopping malls is relatively easy. When these dynamics go in to reverse things aren’t so simple, a scenario facing India.

The squeeze is being felt, AsiaProperty magazine have reported that 11 of 15 malls on MG Road, Gurgaon, have had to refit to create mixed-use schemes as demand for retail space slows. In my opinion part of the reason is that developers have been building malls, not building brands, they have been busy badging “me-too” malls instead.

While a well-positioned and clearly defined brand wont solve all problems, it will help malls stand out from the crowd. More importantly it will help the developer make informed decisions about the tenant mix and service offer based on an understanding of who their target customer is.

The question

Having asked the question, general consensus was that Inorbit Mall – due to its size – was the place to go. While the size of a mall can be important, a competitor can always build a bigger mall, in India where malls are in close proximity this would be a real problem. Regardless, I set off in a taxi with a relatively open mind.

The Taxi twist

The taxi driver spoke good English and asked what I wanted to buy. Having told my story he suggested the Oberai Mall instead. His reasons were telling, it was closer and in his opinion all Mumbai malls were the same, as he put it, they have McDonalds, cinemas and the same shops.

If taxi drivers can see this, the customers they deliver to malls can too. If the retail and leisure mix isn’t providing differentiation, the brand has to. If this scenario is correct Mumbai shoppers are likely to be visiting the mall nearest to home, making customer attraction and retention increasingly difficult.