Wednesday, June 27, 2012

Finance – What is it?

Author: Prof. Jayapandian, Adjunct Professor, SMOT School of Business, Chennai
In our mundane life, one often comes across terms such as personal finance, corporate finance and public finance being used by different people at different times in different places with different connotations.  Indians talk about it, so also the foreigners. Masters talk about it, so also the servants. Men talk about it, so also women. They were talking about it in the past, are talking about it now and would be talking about it in future. It is talked about at break fast, lunch or dinner, at parties, at picnics, at meetings, at places of learning, at places of business, at places of entertainment, at places of worship and at any gathering where humans meet for any purpose. When two or more people join for an occasion, whether personal, social, national, international, economical or political reference is invariably made to finance and financial problems. Some talk about it as elixir for all ailments, while others, mostly those who have failed to get hold of it, talk about it as the cause of all ills. What is this strange creature that seems to be omniscient, omnipotent and omnipresent? Is it the magic wand that can convert water into wine, pebbles into gems, molehills into mountains and vice versa? Or is it a mirage that eludes as one approach it? The answer to these questions is not that simple.

Finance is the lifeblood of all economic endeavours. Although every one feels the importance of finance, in one way or the other, no one has so far clearly understood what finance is. Its meaning is taken for granted. Economists, who, while attempting to define finance, have made reference to the functions of finance rather than what it is. Paul G.Hasings has defined finance as “the management of the monitory affairs of the company. It includes determining what has to be paid for and when, raising the money on the best terms available and devoting the available funds to the best uses.” To Kenneth Medley and Ronald Burns, finance is “the process of organizing the flow of funds so that a business can carry on its objectives in the most efficient manner and meet its obligations as they fall due”. George Christy and Peter Roden observe that “finance is the study of money- its nature, behaviour, regulation and problems”. Howard and Upton feel that finance is “an administrative area or a set of administrative functions in an organization which have to do with the management of the flow of cash so that the organization will have the means to carry out its objectives as satisfactorily as possible”. According to F.W.Paish, finance is the position of money at the time it is wanted. In the words of John J. Hampton, the term finance can be defined as the management of the flows of money through an organization, whether it will be a corporation, school, bank or government agency. Even Encyclopedia Britannica has defined finance as “the art of providing the means of payment”.

It could be seen from the above definitions that finance has been associated with money, its functions and its management. These are like the blind men’s description of an elephant. The authors have described the attributes of finance. Still, the question what finance is remains largely unanswered. To seek an acceptable answer to this question, we have to take a look at the usage pattern of income. Income is the monetary measure of the reward for the sacrifice made by the factors of production in the process of creating wealth. A part of the income is consumed by the factor owners in the process of earning the income. We call it cost. Another part consumed by them in satisfying the different strata of needs. These needs are for subsistence, comfort and luxury. Maslow had categorized human needs into four strata, namely basic needs, social needs, egoistic needs and self-accentuation needs. After the satisfaction of one stratum of needs the underlying strata would emerge. After meeting basic needs, social needs would arise, followed by egoistic needs and self-accentuation needs. The means of satisfying the needs is a part of consumption. That part of the income, which remains after meeting the consumption requirements, is savings.
As consumption gives satisfaction, it should only be logical that income earners should endeavour to consume their entire income to maximize their immediate satisfaction. Why, then, people should save and postpone their current levels of satisfaction? What is their anticipation in deferring current consumption in favour of a future consumption? People do save for meeting unexpected expenditures in future. But that is only a part of the story. The major reason for saving is the expectation of higher degree of satisfaction in future consumption than what the present consumption would give. Savings are thus deferment of current consumption with expectation of higher satisfaction in future.

Savings of people need not necessarily be in the form of money alone, although bulk of savings is in that form. Savings could be in the forms of any of the five resources, commonly   referred to as 5 Ms- money, materials, machines, methods and men. We know that motivating factors behind savings of individuals or groups are security and higher satisfaction from future consumptions. People save for their rainy days and for meeting social and personal obligations in future. Education of their children, their marriage, meeting unexpected expenses such as health care is some of the inducing factors for saving. These factors prompt them to set aside a part of their savings in liquid assets for meeting the requirements as and when they arise. Lord Maynard Keynes, a renowned economist of the modern times, has classified the need for liquidity preference into three motives. These are transaction motive, precautionary motive and speculative motive. The surplus of savings, which remains after providing for liquidity needs, is finance. The surplus, if retained with the savers would not grow and give higher satisfaction. It has to be gainfully purveyed into investment avenues. We could therefore refine the definition and say that Finance is that part of surplus savings which is available for investment. The saver himself could use the finance to enhance his future levels of satisfaction or could allow others to use it for a consideration. If the finance is used by the savers themselves, it is equity and when they allow others to use it is debt. Finance thus could take the forms of equity and or debt. Finance mobilized from a number of sources is fund.

When finance is managed by individuals themselves, it is personal financial management. When companies manage their funds it is corporate financial management. Countries too manage their finance when it takes the form of public financial management.

Tuesday, June 19, 2012

Made in India - “India as a brand”

Author: S. Arun Kumar, Assistant Professor, SMOT School of Business, Chennai

Nation Branding

Nation branding refers to branding of a country in terms of its reputation in the global scenario. Few of the practices involved in nation branding is constantly measuring the Nations growth in economic space, attracting tourism, exports, attracting talent pools, technology innovations, cultural heritage etc. The concept of measuring country’s global perception across various dimensions was developed by Simon Anholt in the year 2005. It is defined as Country branding Index or Nation branding Index.

About IBEF – India Brand Equity Foundation

IBEF is a Trust which was formed in association by two entities namely Ministry of Commerce and confederation of Indian Industries (CII). IBEF’s core focus is to promote the ‘Made in India’ brand and to increase awareness of Indian products in overseas market. IBEF works along with various knowledge partners to communicate the message about Indian Business Stories through the form of CDs, posters, magazines, newsletters and reports.

The article focuses on the perception of the brand ‘India’ across the world and the driving forces that makes the “Made in India” brand to be the fastest growing brand in various verticals like technology, IT, Automobile, Medicine, Telecom, Banking & Financial services, Manufacturing, Retail, Infrastructure and Educational sectors. 

The brand India is linked to the various components of a typical brand attributes.

Brand Personality

The brand India has different facets of eminent personalities who have captured the hearts of global audience. Those include personalities like Mahatma Gandhi Ji, APJ Abdul Kalam, Ar Rahman, Sachin Tendulkar, Ratan Tata, Shiv Nadar (HCL), Narayana Murthy (Infosys) etc who have contributed a lot in taking the Brand India to its acme.

Brand Name 

The name India has also been referred to as Bharath or Bharatham. In his book India Ethos and Values, Indian Professor Ajith Shankar has quoted various scriptures and described the etymology of the word ‘Bharath’ as follows 

·         BHA refers to Bhagvan (God) and Ratha refers to ‘Love’ – Bhartheeyas are people who love God!
·         Bharat refers to the geographical territory of the public of India
·         Region ruled by Bharata was referred as Bharatavarsa
·         Bharath vibrates with hues of every nature


The country India is often referred to feminine attributes of God. The tagline ‘Incredible India’ by the Indian Tourism depicts the scenic and serenity of India with invaluable natural assets and monuments, sculptures depicting brilliant architectures of the century. 

Brand Performance

Brand India has better credibility compared to many other brands in the world. Indian brands like Tata, Mahindra, Maruti, Hero Moto Corp, TVS, Haldirams, Hero cycles, Shakthi Masala, IPL, Tata Nano, Haldirams etc have very global presence.  Bollywood movies have penetrated the global market to an extent that they act as a tough competition to Hollywood movies. 

Brand Promise

There are many examples to prove the promise that India has delivered across the world in terms of health, Information and Technology, Automobile, Textiles, medical etc. Indian medical field ranks the fourth place in the world, in telecommunication India ranks second. The products like mobile phones, machinery components which were imported once are being exported with ‘Made in India’ Brand. India is the hottest selling market for all global companies. ‘Chennai’ is claimed to be the Detroit of Asia with various automobile companies invading Indian market and trying to setup their manufacturing base.

Brand Culture

A country like India is rich with its rich cultural heritage and religious values like religion, Yoga, Ayurveda, Marriage systems and ceremonies etc. 

Brand Essence

The brand essence means the soul of the brand. The soul of India is its rich cultural heritage and values which are still unshaken or affected by western influence. India follows ‘Unity in Diversity’ with more than 100 languages and 400+ dialects, 28 states and 7 union territories. The concept of ‘Saving’ nature has helped Indian economic system to sustain its glory amidst global recession, where even the so called ‘Super Powers’ have felt the pain of economic slowdown.  

 In spite of many invaders starting from Aryans, Persians, Muslim invaders, Danish, Dutch, French, Portuguese and finally The English have tried to plunder the wealth of our Nation, it’s natural wealth and beauty still remains the same and proves to be a ‘Amudhasurabhi’. (The term is being referred to something which never gets exhausted.) There is no doubt that India will emerge as a Super power and once again prove its glory to the world.  

Monday, June 11, 2012

Bad time continues for King of Good Times!

Author: S. Arun Kumar, Assistant Professor, SMOT School of Business, Chennai

Kingfisher airlines, an Indian based airline group which is owned by Mr. Vijay Mallaya, who is always been associated with luxury, extravagant lifestyle and vibrancy. The parent company, United breweries Group is third largest sprit company in the world. He is also known for owning one of the world's most expensive Yachts, Formula One team and IPL Royal challengers team. A general perception prevails among stakeholders, such that ‘Luxury’ and ‘Vijay Mallya’ are always associated with each other.

Kingfisher airlines (KFA), a brand known for its luxury; glamour and its premium class positioning in the airline industry. KFA acquired Air Deccan which is a LCC (Low cost carrier) and Air Deccan has been renamed Air Deccan as Kingfisher Red.   

This article focuses on the reasons and the major areas where KFA failed to focus and they have been summarized below. 

Increasing Debts:    
Though Kingfisher Airlines had a luxurious positioning in consumer’s ‘share of mind’, it always failed to attract good investors since its inception. KFA suffered from huge debts and it failed to pay back AAI (Airport Authority of India) around Rs. 840 crore in the year 2008, currently it owes around Rs.3,000 crore to AAI. The downtrend in the aviation industry started only since 2011, but Mallya failed to pay debts even since 2008, shows his poor commitment to the stake holders. KFA owes Rs.2,000 crore to its vendors and suppliers which further worsens the situation to continue its operations.

Employee Retention:

With increasing debts and the declining trend in the aviation industry, KFA failed to deliver its services and it was not able to pay salaries to its employees. In the past few months over 60 pilots have resigned their jobs which crumpled their operation leading to reduction of flights from 400 to 170 flights per day.

Declining Trust

KFA failed to deliver the trust among the customers, shareholders, suppliers and even the government authorities. Even the government was not willing to bail out KFA from the financial crisis.

Brand Conflict

Kingfisher airlines, a premium class category in the airline industry acquired a low cost carrier Air Deccan. This led to brand conflict among the customers, and brand association miserably weakened since acquisition. People failed to differentiate the services of Kingfisher Red and Kingfisher which diluted the existing brand equity.

Acquisition during poor financial health

Decision to buy Air Deccan which was already suffering from low customer turnover was a wrong move. Acquiring a company with weak balance sheet and a flanker product brand led KFA to further suffer from financial losses. 

Economic Slow Down

The global economic slowdown and corporate trying to cut flight trips to reduce their costs are one of the major reasons for industry to collapse. The increasing fuel costs and the operational costs have pushed KFA to reduce their high end services to customers.

Failure to focus on ‘Points of Parity’

The ‘points of parity’ for an aviation industry is to deliver services at an affordable cost and maintain punctuality. KFA failed to deliver both, KFA focused only on higher order needs of the customer like travel delight and in-flight experience and failed to deliver common services like safety, comfort and economy pricing to cater Indian customers.

Monday, June 4, 2012

7 commonly told lies by sales personnel to their boss!

Author: S. Arun Kumar, Assistant Professor, SMOT School of Business, Chennai

The river Ganga originates at the Gangotri glacier in Himalayas, the word ‘lie’, originates from salesmen! Is it so? General perception prevailing among the people is that, salesman pushes his products in the market by telling several lies to his customers. But lies are not only told to the customers, but also to their superiors. Here are the 7 commonly told lies by sales executives to their boss.  

  1. I could reach my target this month, if my company reduces the prices
  2. Competitor is offering better prices!
  3. My territory is too small/big!
  4. No one is buying our products!
  5. Customer is not having money but he is willing to buy!
  6. I am not aware of the product of product specifications!
  7. Market is dull this year!

These are blame excuses often given by sales man to convince their bosses, in which even one cannot happen or can’t be given as a genuine reason. This in one way shows the poor commitment towards their jobs and they are ready to convince themselves, which reduces their self efficacy. Sales person should focus on relationship marketing and act as a business consultant to the customer instead of a typical salesman. They should have thorough market knowledge and know about the competitor’s offering in terms of product features and price. This will make them to sell their products with more confidence and courage. Customer is more knowledgeable these days with the advent of internet and the reviews by product/service users. Hence, it is very difficult to tell a lie and push a product. The moment the customer realizes that the salesman is faffing around, the deal is lost and the customer also loses trust with the retailer. The entire marketing activity is shifting towards relationship marketing, where the primary aim is to build mutually satisfying long-term relations with the key-parties involved in the business process. Think before you lie!