Macro Economic Indicators

For long I want to write about GDP, Recession,L-V-(and now W) shaped economy and my class in IIM give me good fundamental to blog here in this post.




Why the business magnets always look for RBI,Finance minister speech.Why the corporate world make unnecessary hulla-bulla (necessary for them of course!) before the policy speech.


They are not listening to John F. Welch's speech or focusing for any new gyan.What are these folks looking for?



To get an answer to this question we need to know what economic environment means.There are two level 1.At Micro level 2.At Macro level


Micro level/Firm level details means we are restricting ourselves to only certain level normally firm and its surrounding market.Here managers are concerned about decision making by looking at the current prices,competitors and general enviornment.How to increase efficiency,how to reduce price,how to make use of economies of scale etc are PRIME consideration here.So any decisions made in this case will be with some "beliefs"

• 1.Demand will be stable
• 2.Interest rate,Currency conversion rate,tax rate will be stable
• 3.There will be stability in Prices

Now how accurate and "given" are the above beliefs?



Here comes the need of Macroeconomics.Macroeconomics deals with all in Total! It talks about aggregate demand,supply.It defines and analyse GDP,GNP,inflation,Recession.Thus for a government Macroeconomics is of utmost important to see country's growth plan.Thus what come out of RBI and Finance ministry is nothing but decision and policies about guiding these variables.Hence for industries to function in some given "certians" they need to CAREFULLY listen to govt folks...they need to listen to them to make sure their "certain" and "givens" are indeed true.RBI/Govt policies will give them guidance on interest,exchange rates, aggregate demand etc which will guide the corporate to take better decisions and shape the long term strategy


So you now know what government can do to get our salary hiked and there by making us to spend more therby making the demand hing therby giving companies a reason to produce more giving a healthy ECO-nomic system. But will it work like detailed above? Will it "screw" the system than helping it? Lets see in next post with some examples!

Color and Business Strategy

It is interesting to know industries have different strategies when it come to the "color" to be used to present it before the consumers!

I believe Ford was the first to link color to a product which was successful for a period of 30 years! - The T Model .He joked that you could have it in any colour you liked, as long as it was black.He made sure that BLACK is Sexy color for one to have!(This is not true.Think of the culture that time)

Why he said so :

The fact is that over 30 different types of black paint were used to paint various parts of the Model T. The different types of paint were formulated to satisfy the different means of applying the paint to the different parts, and had different drying times, depending on the paint and the drying method used for a particular part. Black was chosen because it was cheap and it was durable. Common sense tells us that Ford, being a pragmatic man building a very practical car, certainly would have chosen black for this reason. Money Matters!

Think of Scooty from TVS.They made a tie up with Asian paints .TVS now boasts to have Scooty in around 99 shades - You can you choose the color for scooty..Pink,green,Violet....whatelse you need !!!

Why TVS did this?

Scooty's traditional customer is college going ladies :-) They may have a liking towards these colors!I don't know.Guys, Trisha is the new brand ambassador!

iPhone Steve jobs made "headphones" in White color basically distinguishing it from all other head phone products,there by making the presence of iPhone/iPod felt.

So next time when you see Yellow Hero Honda Karizma - Think that there are lot of thoughts being put to present it in that color.

Micro Economics : Bangalore Land price in 2000 and Bangalore Land price in 2005

We all heard, Mr:X braught a 20X30 site 6 years ago in a cheap rate at 20 Lakh in Jayanagar and now the price has doubled! ie : at 40 Lakhs.People say he made 20 Lakh Profit!!!Is that so ?

Let's have some real analysis.

We know due to inflation/deflation,draught,terrorism,whatever the ruppe value fluctuates.
CPI (consumer price index) is a term used to capture the change in the cost of a fixed basket of products and services, including housing, electricity, food, and transportation. Here in 2000->2005 CPI rose from 371 to 456.(Due to inflation,political unstability,world economy...)

I have collected the CPI of India for the years 2000-2006
In 2000 the CPI was 371 for a Salaried person (considering the Base year as 1984 @ 100)
Lets see the value of 40Lakh in 2006 in 2000 Rs terms
ie : The nominal value of 40 Lakh in 2006 can be corrected as a real price in '2000 Rs' terms
Real value of 40 Lakh in 2006
= Nominal value of 2006* (CPI 2000/CPI 2006)
= 40 L * (371/456)
= 40L * .82
= 32.5 Lakhs

When we say a profit of 20 Lakhs( 40 -20) ,the real fact is Profit is reduced by 7.5 Lakhs to 12.5 Lakhs (32.5-20) ! Appadi?

Let me end this with a wise quote :

"Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.” - by Sam Ewing

Balance Sheet of "Bobby's Sweet Shop" as of June 31 2004

Desc	Assets		Liabilities	Equity	Expenses	Desc
Cash	25000			25000		Step1
Donation Asset	300			300		Donation is anyway addition to equity-even though its free it must be recorded with its “fair value”
Cash	-2000		-2000			Wage for the empolyee
Cash	500			200	300	With 300 total expense I was able to sell item for 500
Cash	-1500		-1500			Put back (paid) loan of 1500/-
Cash	-700					Rent Advance+2 month rent
Advance Asset	700
AdvAsset cash	-600					Rend paid for 6 months
Cash	600
Inventory	1000					Worth 1000 invenotry purchase
Cash	-1000
Furniture	200					Furniture worth 200
Cash	-200
Cash	20000		20000			A SBI Loan of 20000
Inventory	1000		1000			Lease stuffs from friends for 1 year

Assets TOTAL (43,300) = Liabalities+Equities (43,300)

Note that all transactions can be matched either ROW wise or COLUMN wise

The serious case of "Accounting"

Accounting - the language of business - is something which I am not comfortable with.I thought this as a boring subject,never be to digest fully.But the first 2-3 session at IIMB changed my posture.My hostile state of mind started tuning towards P&L,Balance sheet,Income sheet etc.

As Prof M S Narasimhan put this - Accounting deals with communicating,measuring and recording business data,in other words accounting just record "MONETARY" transaction.Anything that is not MONETARY is of no importance to accountants.

Lets see the main "equation" in accounting:

Asset = Liabalities + Equity(Capital)

What does this mean?

Consider you want to start a business of say : Bobby's Sweet Shop.

What you need? You need

1. You need Cash of say 25000.


2. A shop which you need to pay rent (advane of 700/- and 2 months rent 600)


3. You need some inventories like chair,table etc (say about 1000 )


4. You need furnitures and fixtures (200/-)


5. You may need some loan from SBI (20000 Loan )


6. May be you can hire/lease some stuff from your friends (inventory of 1000)


7. May be you can get some on "DONATION". P.S: No item in accounting goes without getting recorded (worth 300/-)


8. Of course you need to pay salaries (of 2000)


9. Once shop opened,you will get orders and sell some sweets (income of 500/- expense 300)
   
10. You may take some profit(earnings,income) from this (Retained earning :200)


11. You need to pay back the money you are liable to SBI bank (you repay 1500/- of it)

All these you need to record.Why?

• Becuase you need to know how the things going?


• SBI need to know (can they do future business)


• Friends need to know (they have a stake)


• Govt need to know (Taxation)

Now lets talk about a "sheet" where you capture all these...

It is none other than the BALANCE SHEET.

It has one issue - it will not be aailable in monthly/weekly basis - it will be "GENERALLY" prepared on a annual basis.

C'mon,Lets prepare a balance sheet for "Bobby's Sweet Shop"

Best Business Jargons (PART 1)

Here flows some business jargons you may find useful:

1.click and mortar
This means you are doing online as well as traditional ways of business.In other words you being traditional also explore the latest oppertunities be it in IT etc...
2.All eggs in one basket
This means you must not put all your strategic ideas in one direction.for example all your money put into a stock (ex: Satyam (SAY) :-)) will make you a beggar in a single day
Literally this means you must divide your eggs into different basket so that even if one falls you have some left to survive.
3.Hot seat
Earlier used to discrive "electric chair" used in US prisons for execution
This mean one in a "Hot seat" is in a dangerours stage/position.
4.Don’t bring a knife to a gun fight
This can be used as a caution message.For Negotitaions,planning etc... you must be planned well,understand the opponent,have the skills and resources to match him.Going to grab a deal without homework may kill the deal.
5.Test the Waters
Take a test before launching it.Make a BETA before ORIGINAL VERSION and see the response.
6.Think outside the box
This means to think above and explore - imagine and invent
7.Low hanging fruit
Lets focus on the easy part first than attacking the ones.Low hanging fruits are easy to pluck.
8.Magic Bullet/wand
Best solution.Magic solution for your problems
9.Rainmaker
Pragmatic guy who makes stuff work,make things happen
10.Shotgun approach
Scattered approach.Things not being clear take a wide view
11. Helicopter view
A summary of an issue.
12.Zero sum game
Someone wins but some one loose too and finally there it is a DUECE.Zero net profit.Waste of time.
13.Arrows to fire
No more questions? If one finished with all his "need to know" stuff - can ask any more arrows left?
14.Rolling the tortoise
Tortoise moves slowly.Adding more resources to make it move/roll .
15.Run it up the flagpole and see who salutes
Create an opperunity and see who "sees" it.If you can see the flag - then you will salute it.

Happy to be a bachelor boy ....

"Bachelor boy "

When I was young my father said

Son I have something to say

And what he told me I’ll never forget Until my dyin’ day.

He said son you are a bachelor boy

And that’s the way to stay.

Son, you be a bachelor boy until your dyin’ day

When I was sixteen I fell in love

With a girl as sweet as could be.

But I remember’d just in time,

What my daddy said to me.

He said son you are a bachelor boy

And that’s the way to stay.

Son, you be a bachelor boy until your dyin’ day

As time goes by I propably will

Meet a girl and fall in love

Then I’ll get married have a wife and a child

And they’ll be my turtle doves.

But until then I’ll be a bachelor boy and that’s the way I’ll stay,

Happy to be a bachelor boy,Until my dyin’ day.

But until then I’ll be a bachelor boy and that’s the way I’ll stay,

Happy to be a bachelor boy,Until my dyin’ day.

Sir Cliff Richard was considered as UK's answer to Beatles

Born in Dehradun, India at 1940, and later moved to UK after Indian Independence, this amazing guy scripted some of the marvelous song like "Bachelor Boy" which became a number one single in Britain selling about 260 million records He has shown his caliber in Business - A successful entrepreneur, he is into Wine,Hotel and Tourism business. Arora Hotel chain belongs to him. (http://www.arorainternational.com/)