Monday, July 30, 2012

‘NO’ kriya – for Nokia |Will Nokia witness a slow death?

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

Marketing & financial analysts feel that Nokia suffered from shortsightedness and failed to be proactive in delivering the customer’s hidden needs. Apple’s i-phone and Samsung’s superior innovation in smart phones & android market made them to gain advantage over Nokia in the past few years. Nokia lost a considerable market share due the dumping of low cost Korean and Chinese handsets in Asian markets. People preferred these low cost mobile as they had more features with dual SIM advantage and better battery backup facility. Further to these woes Samsung added many models to its portfolio catering from budget mobiles to premium category. Samsung was the first global brand to have better dual SIM models with fantastic features. This was the major reason for Samsung to boost its market share.  Nokia took a long way to come out with dual SIM models and by that time it was too late to enter into the market.  Nokia was the market leader in mobile phones for more than a decade. This led Nokia to complacency and it was not thinking beyond its existing product portfolio due to high brand value in the market. Theodore Levitt referred this ‘problem of neglecting to customer needs and being too product centric’ as marketing myopia in HBR business review in the year 1960.  

Samsung had technology partnering with Google’s Android, this created a magic in mobile phone market and it was competent enough to conquer the No.1 position, pushing Nokia behind. The Finnish cell phone maker witnessed a heavy decline in sales and the company would continue to lose its market share to Apple, Google and Samsung. These three were direct competitors which were visible for Nokia to compete with but there are more than 100 mobile brands which capture a substantial market share. After S&P & Fitch it was Moody to rate Nokia under non investment grade status. These are globally reputed rating agencies. The rating indicates the institutional investors wouldn’t buy it bonds, due to its poor financial position.  The company will face a serious economic crisis that may even collapse its existence if Nokia fails to slow down its cash burn. The company has company used its cash reserves extensively such that stabilizing and regaining its position is questionable. According to internal sources, the company is anticipating huge loss than predicted numbers and the management is ready to sack more than 10,000 jobs to reduce the costs. Nokia had a major setback after the launch of Samsung smart phones in the market. Samsung’s smart phone compatible with android was better salable in the market than i-phones and symbian models, as it was powered with multiple applications from Google. Samsung currently has 46% market share in smart phone devices and it expects to capture 60% by the end of FY2012. 

Though the management of Nokia started singing the lament with a fear of being shutdown, there is good news for Nokia from the world’s most reputed research agency Neilsen! A recent survey conducted by the research firm claimed that Nokia is still No.1, the most preferred model in the dual SIM model with 30% market share; Samsung with 16%; Micromax with 12% and G-five with 7% market share. There is no doubt that, Nokia ruled the market from 2000-2010 with dedicated models for every set of age and usage. The world has already began to sense the Euro crisis and one has to wait and watch, how the Finnish brains tackle and win their tough times ahead!

Friday, July 20, 2012

CAPITAL Asset Pricing Model

 Author: Prof. Jayapandian, Adjunct Professor, SMOT School of Business, Chennai

Investment is an art of choosing assets whose future intrinsic value is expected to be more than their present cost. When an investor wishes to invest in stocks, he has to find out

         a. The price at which he could acquire a stock or
         b. What is the rate of return a particular stock is expected to give.

The price he could pay for a stock is the expected rate of return the stock would give discounted by his desired rate of return. Suppose a particular stock is expected give a return of Rs. 15, and the desired rate of return of the investor is 10%,  then he would like to buy the stock for a price equivalent to or less than (≤) Rs. 150 ( 15 / .10 =1500). The desired rate of return of an investor is his opportunity cost or the weighted average cost of capital.

The return an investor expects from a stock differs based on whether the stock is quoted in the market or not. In case of unlisted companies, whose shares are not traded in stock exchanges, earning per share (EPS) is the basis for estimation. EPS is the net profit divided by the number of shares the company has issued and outstanding. EPS discounted by the desired rate of return would give the maximum price the investor would pay for that share. For example, the EPS of Solomon Services is Rs.11. The desired rate of return of an investor is 15%, he would be willing to pay a maximum price of Rs.73  (11/.15=73).

On the other hand, the expected return on a quoted share is calculated by using Capital Asset Pricing Model.  The formula was built on diversification and modern portfolio theory  of Harry Mrkowitz. Jack Treynor (1961, 1962), William Sharpe (1964), John Lintner (1965) and Jan Mossin (1966) independently formulated CAPM. Sharpe, Markowitz and Merton Miller jointly received Nobel Memorial Prize in economics for this contribution to the field of financial economics.

CAPM formula is simple and easy to work out. It runs as r= rf+ β (rm - rf) ), where r is the desired rate of return, rf is the risk free rate of return, β is the beta of a sock and rm is the market rate of return. CAPM plays a vital role in assessing the desired rate of return of a security, having regard to its riskiness compared to market risk.

The minimum rate of return desired by an investor, who does not want to take any risk, is risk free rate of return. There is no security which is absolutely free from risk. But it is accepted that the 91 days treasury bills are near risk free. So, the return on 91 days treasury bills might be taken as risk free rate. Treasury bills are usually auctioned periodically. The auction price is indicated ex-interest, like the bills of face value of Rs,100 is auctioned at Rs.98.75. The investor in treasury bills thus would invest Rs.98.75 and on maturity would receive Rs.100. in other words the interest is deducted up front. In the above example, the risk free rate would work out to   5.08%(1.25/98.75/91*365*100= 5.08%).

Beta (β ) is the price sensitivity of a particular stock to the market price. Market price in the country is based on Sensex.  If the price of a particular stock moves in tandem with that of the market, its beta is 1 or unity. For example, if the market price (represented by Sensex) increases by 3.5%, or falls by 2.5% and the price of Reliance also increases by 3.5% or decreases by 2.5%, the beta of Reliance would be 1 or unity. In case the movement in the price of a stock is greater than that of the market, its beta is more than 1.For example, if the market price increases by 3% or decreases by 2%, and the price of WIPRO’s stock increases by 4.5% or decreases by 3%, the beta of WIPRO’s stock is 1.5 or greater than 1.On the other hand, if the movement in the price of a stock is less than that of the market, its beta is less than 1. For example, if the price of Hindustan Levers stock increases by 1.5% when the market prices have increased by 3% and decreased by 1% when the market price had decreased by 2%, then the beta of Hindustan Levers stock is 0.5 or less than 1.When the price of a security is unaffected by the market price movement, its beta is zero. A risk free investment security would thus have zero beta and a higher beta would indicate greater risk. Market risk premium is the difference between market rate and the risk free rate.

Thus, if the Sensex on a particular day changes from 17,145 to 17, 354 and the stock of an imaginary company, Radiant Reflectors, increased to Rs.308 from Rs.299, the β of Radiant Reflectors would work out to 2.37(change in sensex 1.27% and in Radiant Reflectors 3.01. β would be 3.01/1.27=2.37).risk free rate on that date is 5.48% and the market rate of return is 12%. The required return on Radiant Reflectors would thus be20.93 (5.48% +2.37(12%-5.48%=20.93%)

CAPM is thus a very handy formula for taking calculated investment decisions.

Thursday, July 12, 2012

The power of Logos

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

A logo is a graphical representation or an emblem that is used to distinguish companies from its competitors. Logos play critical roles in branding the company’s name and positioning in the consumers mind. An average consumer is exposed directly or indirectly to 3000 advertisements and 8000 touch points of various brands. It is very difficult for a customer to recognize the brands or recall a particular brand. Hence it becomes the most essential factor for the companies to chose and design the right logos to increase the brand awareness and recall. First thing to be kept in mind while designing logos it should be ‘easy to remember’, too complex logos fail in the market as customers do not understand the meaning or the story behind the logo. 

One cannot argue on which is important logo, tagline or the company’s name; each one is complementing to one another along and everything works well only when the product is saleable in the market! Hence brand building by logos is not a one day’s process. It needs constant focus on finding out what the brand communicates to the target audience and it should be congruent with the company’s mission/vision statements. 

What are the attributes of Logo?

A logo comprises of Color, Shape, Size, Fonts, brand message carrying the image of the company. It can be just letters, graphical pictures or someone can use even their face as a logo! 

There is no specific rule for a logo in terms of shape and size, it involves creativity of the marketing team and the graphical illustrator in bringing out the idea of the brand as graphical picture or an emblem. In short Logos are heart of your company’s brand building process, it speaks what your brand wants to convey to your audience. At the same time similar to a human body it needs auxiliary components like brain, liver, kidney etc to function properly for a human to survive and so the brand. The brands should use to right colors in the logo, which is similar to their house color. Too much of colors in the logo acts a clutter and doesn’t help in brand recall. A logo should not be similar to other brands or it can’t be a replica of other brands. Company’s go for ™ trademark registration of their logos in order to maintain their uniqueness and thefts. Hence it is necessary for a company to get TM of its logo, even before it becomes an established company. Many small companies fail to register their logo when they do on a small scale, once they grow up they realize that it is necessary to have a unique identity and by that time it shouldn’t be too late if their competitor or other company has stolen their logo and registered it before! 


Monday, July 9, 2012

It’s not just an MBA

It’s just a degree when you do it somewhere else. But it is a turning point in your life when you do it at the right place.

The 7 Ps of MBA are listed below:

  The salary offered per annum
  The career growth in the chosen profile
 The Company’s brand image
 The Opportunity cost forgone by doing an MBA
 Work place and culture
 Span of control
 The inclination towards the chosen career

The real aim of an MBA degree is to sculpt employers and not employees. Very few management institutes focus on shaping into better individuals rather than making them able managers. Education which was basically rendered as service in ancient India has become a money yielding tool in this modern era. But some institutions such as Vivekananda Educational Society, Chinmaya Mission, Udavum Karangal etc still value the education as precious gift to mankind and we call it a man-making process and not ‘money-making system’. 

Having this as a major objective SMOT School of business was started in Chennai to equip every MBA aspirant to face the global challenges. The institution offers various programs in management in collaboration with globally recognized institutions. Currently SMOT offers PGDBA/MBA programs by having educational partnering with Saint Mary’s University, Halifax,  Canada and Bharathidasan University, Trichy, India. SMOT’s innovative management team has customized its programs to cater the needs of both working and non-working professionals. SMOT has structured it fees at a moderate cost, at the same time without any compromise on standards to serve its real motto of serving the people with excellent management education. 

What makes SMOT different among the lot?

Best-in-class Infrastructure Facilities

The campus is located in the IT-Corridor of Chennai, which is a major boosting factor for the institution to attract placements and industry speakers. All major MNCs in IT/ITES are situated around the campus. A visitor who enters the campus feels that he/she has entered into a corporate setup with no second thoughts. Wi-Fi campus, e-learning tools, video-conference equipped class rooms, sophisticated library, outbound training are add-ons to this campus.

Placement equivalent to Top B-Schools

The institution was successful in attracting all major companies in every field ranging from telecom, IT, ITES, manufacturing, FMCG, financial service providers etc. Idea Cellular, Macmillan, CTS, Reebok, HCL, MAERSK, PHOTON are some of their regular recruiters. 

Faculty Network

An educational institution needs a rich knowledge base to facilitate students at every phase of their life. SMOT’s faculty network comprises of alumni from leading management institutes across the globe and members from major various industrial sectors. It also offers additional course-ware and international seminars/workshops to enhance the students with world-class standards.