“Consumer-confidence is Back”: How Marketers can seize the Opportunity | by: Harish Bhat | Business Line

Which means people are going to spend more….Here’s how “Marketers” can seize the opportunity..!!

Each quarter, research and measurement company Nielsen publishes the results of a Global Survey of Consumer Confidence…This is perhaps the largest survey of its kind, sampling more than 30,000 consumers online in 60 countries, to understand how confident they are about the future…It also gauges their future spending intentions, which are dependent on such confidence…The results of the latest survey were published by Nielsen a few days ago…What do these findings tell us ?? 

The big news in these latest results is that India has topped the #ConsumerConfidenceIndex…In the previous five consecutive quarters, Indonesia had ranked first, but this time around India is well ahead…This means that Indian consumers are today the most confident and optimistic, in comparison with their counterparts in all 60 countries surveyed worldwide…The equally important news is that India’s consumer confidence score has also increased significantly within the past few months — it now stands at a handsome 128, up from 121 in the previous quarter..

Any score above a baseline of 100 indicates degrees of optimism in the economy… Interestingly, #consumerConfidence, scores in large countries such as the US, the UK, and the UAE — which have strong linkages with the #IndianEconomy — have also increased by 4, 5 and 3 points, respectively, compared with the previous quarter…

India’s consumer confidence score requires some further detailing, to understand how powerful a figure this is. At 128, it is now virtually on par with its pre-slowdown score of 133 during 2007, when the Indian economy had been roaring ahead at a growth rate of more than 8 per cent per year. It is also significantly ahead of the global average, which stands at 97 and which has increased by only one point over the previous quarter…This means that Indian consumers are surging ahead in terms of confidence, compared with historical and global yardsticks…!!

This is surely very good news for Indian marketers…Many #ProductCategories, and Brands are likely to rise on this swelling tide of optimism…But the biggest victories will belong to #Marketers and #Retailers, who leverage this increased consumer confidence most appropriately and powerfully — particularly because such rising confidence comes in the run-up to the busiest shopping season in India, the festivals of Navratri and Diwali….To translate consumer confidence into extreme purchase buoyancy for their brands, companies will need to understand the fundamental reasons why Indian consumers are feeling far more optimistic today; and also what they can do, as smart marketers, to fuel and leverage these factors…!!

Budget Moves :

At the national level, the coming to power of a stable Narendra Modi-led Government with a strong majority and a progressive agenda appears to have impacted Indian consumer confidence very positively. Consumers feel more confident when their Government espouses and drives an agenda for economic growth, which has the potential of spurring future investment and creating new jobs. As the Nielsen report points out – “The annual budget announced by the new Government reveals a positive outlook for business, and we expect this to reflect in consumer sentiment in subsequent quarters as well.” A strong Independence Day address by the Prime Minister on August 15, which emphasises the actions being taken to drive growth, will undoubtedly add further to such consumer optimism..

In addition, tax-paying consumers today feel that they have more disposable income to spend on products they want to buy, because of some specific personal income tax exemptions announced in the recent Budget. The Finance Minister has raised the basic income tax limit from Rs. 2 lakh to Rs. 2.5 lakh for everyone, and from Rs. 2.5 lakh to Rs. 3 lakh for senior citizens. In addition, he has increased the amount eligible for tax exemption under Section 80C and has also enhanced tax deduction on #HomeLoans…

All this means that a tax payer in the 30 per cent tax slab is richer by Rs. 36,000 per year and a tax payer in the 20 per cent tax slab by Rs. 25,000 per year…That is enough additional money for the consumer to buy a new television set, an air-conditioner or several pairs of new clothes for the family, in the season ahead…

What Media says, Matters :

People are generally aware of their own economic state but there is also the additional impact of media on consumer confidence. A CES study undertaken in 2006 (“Impact of Newspapers on Consumer Confidence”) highlights that consumer optimism is impacted not only by economic fundamentals but also by the way these fundamentals are reported in media…

Indian media, over the past few weeks, has generally voiced optimism about the economic policies and measures of the new Government and also about the long-term India growth story. This has also added to the overall positive sentiment…

In this positive landscape, a poor monsoon and continuing high inflation still have the potential to play spoilsport. However, there is no doubt that the number of factors driving an optimistic outlook has gone up sharply over the past few months and this is what has resulted in India topping the global consumer confidence index. And it is also heartening to see that the monsoon, after a shaky start, has revived during July…

What Marketers should Do ?:

How should Indian marketers respond to such growing consumer confidence ? The answer will vary across categories and segments, but here are some initial thoughts for us to consider…

First and foremost, when consumer confidence shows such strong increases after several quarters, there will be significant pent-up demand that suddenly begins expressing itself. If people had put off buying discretionary items such as a new car or two-wheeler or wrist watch for the past couple of years, this is the season when they are likely to consider purchases once again. Therefore, in the months ahead, marketers would do well to focus their energies and investments on discretionary categories which have seen sluggish demand, or even declines in demand, over the past two or three years.

Second, there are a number of useful consumer insights that marketers can tap into, in these times. For instance, many people may wish to indulge their families during the forthcoming festive season, after having been somewhat frugal in the past couple of years.

Also, if consumers can be appropriately reminded of the significant amount they are saving in taxes this year, they may be willing to spend this amount relatively freely, without any undue anxiety or guilt. Savvy marketing can help leverage and own such insights powerfully.

Third, marketers and retailers should consider significantly stepping up investments in driving footfalls and purchase consideration during the busy season ahead. Marketing investments tend to work much better during times of consumer optimism, than during relatively bleak periods.

#Brands, that are the first to occupy consumer mind space in their respective categories are most likely to be the ones to best leverage such positive sentiment…!!

Finally, for brands that target affluent and upper-middle-class consumers, this is absolutely the right time to promote premium products that may be somewhat more expensive but are also far more indulgent. Confident and optimistic consumers generally like to indulge themselves.

Here’s wishing all my fellow marketers good luck, as you begin preparing for an excellent festive season ahead. This year, you should feel greatly encouraged that you have consumer confidence on your side…

“In VCs / PEs”, Birds of a Feather “Lose Money-Together” | by: Carmen Nobel | HBS Working Knowledge

The more “Affinity there is between two VCs / PEs investing in a Firm/Venture…”, the “Less-likely the Firm/Venture will succeed”, according to research by Paul Gompers, Yuhai Xuan and Vladimir Mukharlyamov…!!

To illustrate the old adage that Birds of a Feather Flock Together, there may be no better example than the #VentureCapital, industry..!

A recent study finds that #VentureCapitalists, have a strong tendency to team up with other VCs / PEs whose ethnic and educational backgrounds are similar to their own…”Unfortunately, that tendency turns out to be bad for business…”

“ AT THE EARLY-STAGE OF A COMPANY, YOU WANT THE PEOPLE AROUND THE TABLE TO CHALLENGE EACH OTHER…”

“Much of the homophily-literature in business research talks about the positive benefits of working with people who are similar to you—ease of communication, comfort level, and the like,” says Paul Gompers, the Eugene Holman Professor of Business Administration at Harvard Business School, who cowrote the paper with HBS Associate Associate Professor Yuhai Xuan and Vladimir Mukharlyamov, a graduate student in the Economics department at Harvard. “What we show is that, in this context, the effects can be quite negative”..

The Team set out to Answer a Few Key-questions : What specific characteristics influence individuals’ desire to work together on an investment deal ?? And given that influence, how does affinity affect investment performance  ?? Do common characteristics lead to better communication, which then leads to better decisions ?? Or does like-mindedness lead to narrow decision-making, to the detriment of the deal  ??

The research began with a database of 3,510 individual venture capitalists and their investments in 12,577 companies between 1973 and 2003….Over the course of six years, the research team collected detailed biographical information on each VC, including ethnicity, educational background, and employment history. They then looked at who had invested with whom, and what those co-investors had in common…!!

Across the board, the researchers found that venture capitalists tended to co-invest in deals with other VCs who possessed similar characteristics. This was true regardless of whether the similarities were ability-based or affinity-based. For example, two VCs who graduated from the same undergraduate school were 34.4 percent more likely to collaborate on a deal than were two VCs from different alma-maters… And the probability of collaboration between VCs increased by 39.2 percent if they were members of the same ethnic minority group…!!

The data held up with what Gompers had observed qualitatively in his two decades of studying the venture capital industry…”There are strong affinity groups with Indian venture capitalists and entrepreneurs and with Chinese venture capitalists and entrepreneurs,” Gompers says. “And there’s sort of a cabal of Jewish entrepreneurs and VCs as well…”

The Team then examined how these similarities had affected the outcomes of the portfolio companies in the study…(For the purposes of the paper, a successful outcome was defined as one in which a company eventually filed for an initial public offering)

They found that the probability of success decreased by 17 %  if two co-investors had previously worked at the same company—even if they hadn’t worked there at the same time… In cases where investors had attended the same undergraduate school, the success rate dropped by 19 %… And, overall, investors who were members of the same ethnic minority were 20 %  less successful than investors with different ethnic backgrounds.

It dawned on the researchers that affinity might make it easier for one venture capitalist to guilt-trip another into making a bad deal—doing a favor for a friend. “We thought it could be that they only syndicate the deals to their friends that they can’t get anyone else to do,” Xuan says.

To test for that possibility, the team assessed the 12,577 investments according to measures that had proven to be indicators of future success, according to previous research…Such indicators included whether a company’s founder had a history of founding successful companies, the stage of the portfolio company (risky early stage versus less-risky later stage), and how much media attention the company had received at the time of investment…!!

Controlling for these factors, they found that the quality of the deals was not apparently affected by co-investor affinity…In other words, birds of a feather did not necessarily pick worse investments than birds of different feathers on day one…”It’s not like we invest into a deal that’s bad to start with, and therefore we get a bad outcome in the end,” Xuan says…

Rather, the lack of success among similar investors seemed to lie in the decisions that followed the investment…!!

In addition to granting Cash, Venture-capitalists are heavily involved in Hiring or Firing the CEO of the Portfolio-company, choosing a Board of Directors, devising an Overall Strategy, Identifying Potential-Partners, and so on…Indeed, the researchers found that the negative affinity effect was strongest in early-stage deals, which generally require more input from investors than do later-stage deals…

“[The] lower likelihood of success of co-investments between venture capitalists that share similar characteristics is triggered by them making inefficient decisions or even mistakes that they would otherwise avoid,” the researchers write in The Cost of Friendship.

They attribute this in-efficiency to “Group-Think,” the psychological phenomenon in which members of a group make poor decisions because they fail to consider viewpoints other than their own….“When you are really familiar with each other, you tend not to go outside of your circle to get an outside opinion,” Xuan says…!!

The findings are in line with some organizational behavior studies, which have found that that work groups perform better when members learn from one another’s disparate experiences…!!

“I think this carries over to venture-funded start-ups, in which having a diversity of venture-capitalists around the table is actually critical to their success,” Gompers says….”Take two people who once worked at Google, who went to Harvard Business School, and who are Indian American….They probably look at things in a very similar way and are unlikely to challenge each other…But at the early stage of a company, you want the people around the table to challenge each other…”

Gompers and Xuan make a point of sharing the finds with students in the MBA program at HBS, many of whom pursue careers in the venture capital industry. In fact, people with Harvard MBAs make up 24.4 percent of the professional ranks at venture capital firms in the United States, according to a study by PitchBook. A network that powerful must beware the power of group-think and collaborate with other networks, the professors advise.

“But it’s likely that if you’re an HBS MBA, you think like other HBS-MBAs, because you took the same courses from the same professors…And it’s important for students to realize that it might be useful to have a diversity of people around the table when you make investment decisions OR you’re working on New-ventures..That, at least for me, is an important prescriptive element of the paper…”

“Narendra Modi effect”: “Clutch of VC & PE funds” out to raise $2 billion | The Economic Times

More than half-a-dozen VC & PE Funds, are set to start the process to raise a combined $2 billion (about Rs 12,000 crore) from foreign and local investors, riding on the #BullishSentiment the change in Government has brought to the market…!!

At least FOUR established PE Funds have begun talks with investors while three have revived previously shelved plans, said people with knowledge of the matter and fund managers…

Arth Capital and Exponentia Capital are among the funds that have brought back plans that had been put on the back burner. ” We have a commitment of $150 million now and would raise up to $500 million for our infrastructure fund,” said a person with direct knowledge of the ICICI Venture fund’s plans.

ICICI Venture, India’s second largest PE fund, is betting on the infrastructure sector, which is high on the investment agenda of the Narendra Modi government to kick-start the economy…” There is a huge equity requirement for infrastructure projects,” this person said…!!

Narendra Modi Effect: clutch of PE funds out to raise $2 billion

Investor sentiment towards India had soured in recent years as economic growth slowed to less than 5% in fiscal 2013 and 2014 from over 8% in 2007. PE funds that have invested more than $50 billion in the past decade couldn’t exit their holdings as company valuations took a dive.

With returns from PEs drying up, limited partners (LPs), who commit money to these funds, stopped making new investments, delaying closure of new funds.

Though those concerns have now eased as the window for public offers opened again, industry experts say fund-raising will still be challenging for those who don’t have a good track record, quality and team continuity.

” VC & PE funds which demonstrate these parameters will have an edge over others,” said Vikram Utamsingh, managing director of transactions advisory group at Alvarez and Marsal. “LPs have been negative as the India story had been dampened for the past four years, but post national elections they are turning positive.”

According to him, investors are watching how the government will improve the investment climate. “There have been lots of enquiries from investors,” Utamsingh added..

Everstone, owned by former Mckinsey consultant Sameer Sain and partner Atul Kapur, is planning to raise around $750 million, its third fund. They have already made investments from two funds, focusing on companies in sectors such as consumption, infrastructure, real estate and financial services. Between 2006 and 2011, Everstone raised $975 million, closing the first fund of $425 million in September 2006 and second in May 2011 after raising $550 million. The last fund invested in 11 companies, including Hinduja LeylandBSE -1.51 % Finance, Burger King and Indostar Capital Finance, a non-bank finance company..

” We will raise the third fund by the end of the year only. It’s too early for us,” said a spokesperson. ” Typically, PEs raise funds once they have invested close to 80% of the money which is usually threefour years from the time they raise the fund,” said Utamsingh.

Some funds have received commitments from their main investors, or anchor investors. Multiples, owned by former ICICI Venture head Renuka Ramnath, has received a commitment from Canadian Pension Fund (CPF) for $100 million, as it plans to raise $500 million in its second fund. CPF had invested $80 million in the previous fund…!!

Exponentia Capital of PR Srinivasan, former head of Citigroup PE fund, has revived its plan to raise $250 million. “Fund-raising should accelerate as PE funds successfully exit from some of their investments in the past five years and return capital,” Srinivasan said…But some fund managers say fund closure will take longer…!!

” Though the stock markets have run up much faster, limited partners will take a longer time to react,” said Sumit Chandwani, managing partner of Arth Capital that has revived plans to raise $200 million…

“We could be closing the fund in the next 6-12 months,” said Chandwani, who had worked at ICICI Venture for 12 years before starting his own fund….!! 

Expect “more Mid-Market Divestitures in 2014” : “Strategic-sales OR Acquisitions for growth-momentum” | Chief Executive

The report, conducted in late 2013 and the THIRD such endeavor by RBS Citizens, surveyed 460 Executives, ” who are open to OR currently engaged in some sort of corporate development activity, including Mergers, Acquisitions and Raising-capital…”

With a sense of stability returning to the economy middle market companies remain open to buying or selling but are prioritizing opportunities to Re-invest in their existing operations..

“ Our latest survey indicates that the appetite for acquisitions and sales remains strong, but businesses are taking a more strategic, less urgent approach, which reflects a strengthening economy,” said Bob Rubino, EVP and head of corporate banking and capital markets for RBS Citizens.

“As more Middle -Market companies see Top-line growth, Owners are looking for Strategic-Sales or Acquisitions that can augment their Re-investment Strategy and help keep their Growth momentum going ..”

These findings mirror other reports that suggest that critical sectors of the U.S. economy such as healthcare, retail food and energy will see continued or renewed M&A activity in 2014, according to business leaders at CIT Group. .

The middle market is ripe for a more fruitful M&A environment in 2014, according to Thomson Reuters LPC. The persistent fog of economic and political uncertainty that has stymied investment is lifting, giving way to improved visibility for lenders, borrowers and private equity sponsors alike.

Increased Economic confidence, more certainty with respect to Fed tapering, and fewer concerns about future government budget stalemates are paving the way for greater willingness to buy, sell and invest in middle market companies…

If in recent quarters companies were primarily focused on cost savings, they are shifting their attention to strategic growth opportunities. There is an abundance of capital – in the hands of both debt and equity investors – waiting on the sidelines, which will help buoy M&A activity…

Key findings from this year’s RBS Citizens survey include :

Sellers are more interested in selling part of their business than the whole.

While interest in raising capital remains steady, companies are less likely to take on debt and are more likely to accumulate earnings, sell a business unit or divest significant assets to make investments.

Executives believe both this year and next will be a ” Buyer’s market”..!!

Nine of Ten survey respondents intend to engage a ” Friend in the deal ” – an outside partner – to provide guidance throughout the M&A process ; half of all buyers and 40% of sellers are considering partnering with a commercial bank…!!

In late 2013, RBS Citizens conducted a survey of 460 U.S.-based middle market business executives that are open to or currently engaged in some form of corporate development activity, including mergers, acquisitions, and raising capital in the New England, Mid-Atlantic and Mid-West regions. For the purposes of this survey, middle market businesses have annual revenues of between $5 million and $2 billion.

The Sellers’ Perspective :

  • Based on this year’s survey results, the proportion of current and potential sellers in the market remains unchanged since 2012, but their motivations and intentions have shifted.
  • Although just 6% of middle market executives are currently involved in a sale, more than one-third indicate they would be open to a deal if approached by a buyer with a strategic fit.
  • While sellers were willing to ‘sell it all’ a year ago, a partial sale – selling an operating asset or division – has become more appealing than selling off the entire organization.
  • Being undervalued and underpaid by acquiring firms remains sellers’ primary concern; partial sellers are increasingly concerned about meeting post-acquisition revenue targets.

The Buyers’ Perspective :

While fewer acquisitions were in process at the end of 2013 than in the year before, deals this year are expected to be ” Larger and more Strategic” :

  • Less urgency in the market has translated into fewer current deals in process in early 2014 and more potential buyers are ‘on the sidelines’: open to but not actively seeking buying opportunities.
  • Buyers are less reliant on M&A as a means of growing; their goals are now more likely to be expanding geographic reach, increasing production and product capabilities and accelerating organic growth.
  • Respondents plan to make fewer purchases in 2014 but expect to spend more on each; the majority of executives anticipate spending between $10 million and $25 million.

Given the complexity of an M&A transaction, from ensuring proper valuation to identifying the best strategic buyers OR acquisition targets, the process has become more labour-intensive.

Most companies  without an “experienced Internal-Team” are “relying on an Outside Advisor”…!!

  • Of organizations who intend to engage external support for their deal-related corporate development needs, commercial banks are the most popular choice, followed by investment banks and business brokers.
  • Nearly half (47%) of respondents rate commercial banks as ‘excellent’ in regards to their corporate development capabilities, compared to 35% for investment banks and 26% for both private equity and venture capital firms.
  • Valuation, financing, opportunity assessment and due diligence are the areas where these companies are looking for the most help.

 

“Time to Re-engage with Emerging Markets”, “Not Retreat from”| BCG

These are challenging times for Emerging Markets… China’s economy is expanding at the slowest pace in more than a decade, and Annual-Growth in once-booming nations like Brazil, Mexico, Russia, and South Africa has slowed to about 1.5 to 2.5 percent…While India, has fared well in-comparison to its peer BRICS nations…but is well-below its own Y-o-Y GDP no’s, since 2008…

Look around the developing world, and currencies are weakening, worries about asset bubbles and rising debt are mounting, and foreign direct investment has fallen sharply. This volatility leaves many companies wondering if they are over-exposed to the #RisksOfEmergingMarkets..

The challenges in emerging markets go beyond volatility. Fundamental, longer-term changes are transforming the competitive landscape. In most emerging markets, domestic companies with low-cost structures and intimate knowledge of local consumers are more aggressive and are quickly improving their operations… Competition for increasingly scarce talent is fiercer and is driving up labor costs. Such trends are hurting profits. In China, for example, the share of U.S. companies reporting that their operating margins were higher than the global average dropped from about 50 % to just over 30 % between 2010 and 2013, according to the American Chamber of Commerce in Shanghai..

Still its Where the Action Is :

But companies that plan to look for the exits or scale back in emerging markets should reconsider. The most fundamental trends remain promising. One is that emerging markets will remain an unmatched source of growth in most industries. Another is that hundreds of millions of households will continue to join the ranks of the middle class and affluent in the decade ahead..

Despite the discouraging headlines, Emerging Markets are more important today than ever before. Even with all the turbulence in 2013, these economies accounted for 68 percent of global growth… Although the overall pace has slowed, Oxford Economics projects that GDPs of emerging markets will grow 2.2 percentage points faster than those of developed economies over the next four years. Just in terms of infrastructure, demand for investment in emerging markets will total a stunning $25 trillion through 2025, according to some estimates.

The ” BiggestDriverOfGrowth will be Rising Incomes… The Boston Consulting Group projects that in Turkey, an additional 6 million households will enter the middle and affluent classes in the next five years. In Indonesia, we project that 68 million people—roughly equivalent to the entire population of the UK—will make a similar leap by 2020. Thirty-seven percent of Brazil’s 60 million households will belong to the middle and affluent classes by 2020, compared with 29 percent now, and will represent a $1.2 trillion market. In China and India, such households will represent $10 trillion in buying power. Companies will have to look beyond a country’s GDP and focus instead on the more significant factors that will generate growth: rising consumption by relevant segments of consumer markets, and signals that purchasing power is about to take off.

To win in emerging markets, executives will need to rethink their approaches. As many of these economies make the transition from super-high growth, tapping major new sources of revenue will become harder than in the past. Executives should adopt a more differentiated approach to emerging markets and market segments…Companies should build new capabilities, adjust their business models, and improve their execution..

We believe that the following are the Primary #CorporateChallenges :

Refining the Emerging-Market Footprint – Growth prospects, consumer behavior, and the local competitive environment differ widely from one emerging market to another, as well as among industries. Each company must define the most promising emerging-market priorities, taking into consideration its own unique context and starting point…!!

We offer ” TWO Specific Ideas” for how executives should Re-visit their Market Portfolios : First, they should think beyond the popular acronyms. In the past few years, attention has been focused on the so-called BRIC economies—Brazil, Russia, India, and China. More recently, there has been more talk about MINT (Mexico, Indonesia, Nigeria, and Turkey). Of course, no company with global aspirations can ignore China and India. But companies should also build positions in markets that may offer better opportunities in the short term. While many multinational companies still target Indonesia, for example, material opportunities are also opening in adjacent Southeast Asian economies such as Vietnam, a recharged Philippines, and the frontier market Myanmar. Africa is also drawing greater attention from multinationals. Hyundai, for example, has surpassed Toyota in the five African countries that account for 70 percent of new-auto sales: Algeria, Angola, Egypt, Morocco, and South Africa. Samsung, also of South Korea, has set two goals for 2015 : achieving $10 billion in African sales and training 10,000 African engineers and technicians in order to develop the capabilities it needs to succeed.

Second, executives should simplify their strategies in order to expand and compete. Rather than always approaching each country individually, for example, they should think in terms of clusters. The sheer challenge of understanding and winning in more than 100 emerging markets can be so intimidating that most executives dare not try. So they should develop strategies to address promising segments across a number of neighboring countries or consider regional sourcing strategies in order to achieve critical mass. In Southeast Asia, for example, one major automobile company is taking advantage of the region’s free-trade pact to manufacture diesel engines and steering columns in Thailand, transmissions in the Philippines, gasoline engines and parts in Indonesia, and engine control units and steering gears in Malaysia.

Winning Over More Demanding Consumers – Emerging-market consumers expect more from foreign brands than they used to. Even average consumers in the lower rungs of the middle class are quality conscious. They can no longer be consistently won over by Western or Japanese products whose features and functions have been stripped down in order to hit a certain price point.

One reason for this development is that the quality gap between foreign and domestic products is closing fast. China’s Haier, for example, has emerged as the world’s largest appliance maker, in part because of its obsession with quality, according to a recent article in the Economist. Haier began by establishing a reputation for high-quality products and service in China. When it expanded overseas, Haier first pushed into the U.S. and Europe—rather than into less competitive markets such as Southeast Asia and Africa—because it wanted to learn how to meet the demands of the world’s most sophisticated consumers. As a result, Haier’s revenues have increased fourfold since 2000, topping $26 billion in 2013.

Multi-nationals must also move beyond selling off-the-shelf products and services that are aimed at the top of the income pyramid in emerging markets. Yum! Brands’ famous success story in China, where it has averaged annual growth of about 30 percent, is based on a strategy of customizing its restaurant concepts to local tastes, from restaurant design to food choices.

Adapting to the Big Competitive Squeeze – A decade ago, many multinationals regarded their global peers as their main competitors. This orientation has fundamentally changed. Foreign companies in emerging markets are being squeezed by different kinds of players.

One major source of competition is what BCG refers to as “global challengers”—fast-growing, globally minded companies with roots in emerging markets that are on track to establish leadership positions and to fundamentally alter their industries. In fact, 124 of the global Fortune 500 companies for 2013 were headquartered in emerging markets—more than double the number in Fortune’s 2008 list. In a recent BCG survey of more than 150 multinational executives, 40 percent of the respondents said they regarded other multinationals from developed economies as their primary competitive threats in emerging markets. But a greater proportion—50 percent—saw multinationals based in emerging markets as their main threats.

A second major challenge comes from companies that we call “Local Dynamos”: smaller emerging-market companies that focus only on their domestic markets. Such companies are catching up in terms of performance and distribution. They also have developed an intimate understanding of local consumers and strong relationships with local governments. In Brazil, where Wal-Mart Stores and Carrefour are both investing aggressively, the regional supermarket chain Super Muffato is the market leader in interior cities in the country’s south and in cities with more than 300,000 residents in the state of Paraná. Its 40 stores are just as profitable as stores in bigger cities owned by major international chains. For such reasons, 78 % of the multinational executives in our survey said they regard domestically focused companies as principal threats in emerging markets. In other words, these local companies are viewed as more serious rivals than other multinationals or new global challengers.

Meeting the Higher Expectations of Local Partnerships – Multi-billion-dollar #CrossBorderMergers&Acquisitions in #EmergingMarkets, tend to grab headlines.

But the real payoff on the ground for foreign companies is less than satisfying and often is not far-reaching. Organic growth, however, is challenging. To succeed, companies will have to up their game both in M&A and in forming local partnerships. While the rationale for and approach to a partnership agenda must be thought through in detail and tailored to each company’s own context, the emerging-market landscape is already witnessing different approaches to partnering.

One challenge for executives is to address the higher expectations of local partners. Emerging-market joint ventures in many sectors were traditionally based on a simple pact: foreign companies provide access to technology, capital, and sophisticated management solutions while domestic partners provide market access, government relationships, and, in many cases, low-cost production.

But this relationship has become obsolete. Today, partnerships between foreign and emerging-market companies are on a more equal footing. Local partners may inject capital or contribute valuable technology. They may even insist on a global partnership. When a Japanese provider of hospital equipment recently approached three preferred local-partner candidates for the India market, each company requested not only to help build up the local business but also to be the partner for expansion into other overseas markets. Indian motorized-vehicle manufacturer Bajaj Auto formed an alliance with Japan’s Kawasaki to obtain technology support for new-product development and to address a wider range of markets at home and abroad.

Organizing for #GlobalSuccess :

If a company views emerging markets as important to its success, this must be reflected in its organization structure. We see four imperatives regarding organization in these markets..

A Seat at the Table – One critical element is the way in which the corporate center supports its overseas units. Frequently, companies marginalize their organizations in emerging markets, all but guaranteeing that they will underachieve. They do not have a proper seat at the table of decision making, corporate strategy, and product development and have insufficient access to capital and people. If these markets are to deliver a larger share of growth, they deserve a disproportionate share of attention and support. At the home-product and beauty-care-product direct-sales company Tupperware Brands, which generates more than half of its annual sales in emerging markets, CEO Rick Goings is on the road 70 percent of the time, much of it in developing nations. Members of Siemens’s board learn about important emerging markets by spending two days in a region meeting with customers, government officials, and other key stakeholders.

An Accelerator Mindset & Organization – Multinational companies must adapt their organizations so that they can better cope with the tremendous speed with which many emerging markets are developing. Fast decision-making and consistent execution are paramount to compete with what we call the “accelerator mindset” of many emerging-market companies, such as their relentless pursuit of growth. Copying organization and governance structures that are successful in home markets may put multinationals at an unnecessary disadvantage against their local peers.

True Market Immersion – The most important imperative relates to leadership and people. Upper management must be familiar with emerging markets, ideally through on-the-ground experience. Senior executives must also remain sufficiently exposed to key customers, distributors, partners, and government officials in these markets. Too often, a foreign company’s senior executives experience only new airports and five-star hotels, rather than the realities of living on the ground.

Talent as a Competitive Advantage – Typically, foreign companies are at a competitive dis-advantage when it comes to recruiting top local talent. Talent is increasingly scarce, and attrition is high. Two out of three Indonesians change their employer within the first three years, for example, and one out of three does so more than once. The annual attrition rate in India is close to 15 % .

This high turnover suggests that executives must re-double their efforts to attract, develop, and retain local talent…They should also work harder to build organizations for the long run in emerging markets. When filling management positions, they must move away from the traditional practice of “ Expatriate Stints”, in which a Manager from Headquarters is assigned to an Emerging Market for about THREE years… Instead, executives must invest in future local leaders…

They should expose top Emerging-Market Talent to Global Activities and get them excited about their future growth potential in a company where individuals can thrive independent of their nationality… Wherever possible, leaders should instill in their companies a global mindset, in which a diversity of backgrounds is understood to contribute to international success.

#SuccessInEmergingMarkets, has become “more challenging than it was in the past”… But there is “still plenty of opportunity for growth”—most likely more than Developed Economies can offer. Rather than #RetreatingFrom EmergingMarkets, it’s “time for Executives to Re-tool & Re-position their businesses for #SustainedSuccess….!!

“Flipkart & Myntra Merger Is a Done Deal” ; “Flipkart to Raise Another Round of Funding, before IPO” | M&A | NextBigWhat

” The great Indian E-commerce Wedding we’ve all been hearing about for long is done”….the Two companies have kept it under the wraps so far but according to our sources, the deal has been completed and integration between the two has begun…

Both Myntra & Flipkart will operate as separate brands. This was a major point of contention between the two companies as Myntra was keen on operating a separate brand. In between, acquisition talks had stalled due to this…Back in November 2013, before the deal talks were on, we’d written on why the two companies should explore synergies. The two companies danced for a while….And there was much speculation in the press..!!

We haven’t been able to confirm the deal size, but the cash and stock deal is expected to be over $250 mn in value. Flipkart is also out to raise another round of funding before it makes it big move to go for a public offering…

Married

In October 2013, Flipkart closed a $360 mn round of funding from investors including Dragoneer Investment Group, Morgan Stanley Investment Management, Sofina and Vulcan Capital and Tiger Global…Here are some of the details :

Common Investors + Margin Boost ?

Accel, a common investor in both Flipkart and Myntra, has been known to be a M&A friendly Investor. Take a look at the past:

  • Flipkart : LetsBuy
  • Myntra : Shersingh

For Flipkart, Apparel is the #NextBigWhat category to crack and the company has been trying to catch up with Myntra, which is a market leader in the category. Although apparel is a high margin business, the war between the Two would mean large discounts and paying a lot of money to Google.. for #SearchEngineMarketing, at the expense of investors..

Flipkart & Myntra : The Common Investors :

” Tiger Global, Accel Partners and Sofina are common investors in Flipkart and Myntra”….It would have ” cost them all a fortune if the Two had continued to battle it out while “Amazon” on one end and “Snapdeal” on the other” (Snapdeal recently raised $133.7 mn led by eBay)…..!!

And both Flipkart and Myntra are also notching up losses as their revenues go up..

” Myntra ” Revenues :

Myntra posted Rs 134 cr loss on a Top-line of Rs 212 cr for the year ending 31 March 2013…In the year before (2012), Myntra’s revenues were Rs 67 cr and losses were Rs 51 cr. Flipkart, on the other hand reported a loss of Rs 281.7 crore in the year ended March 2013, up from Rs 109.9 cr in the previous year.

Myntra closed a series F round in February 2014Table below shows how much each investor funneled into Myntra:

Investors

Total Amount Paid Incl. Premium

Tiger Global

Rs 31 Crore

IDG Ventures India

Rs 9 Crore

Accel Growth FII

Rs 9 Crore

PI Opportunities Fund – I

Rs 155 Crore

Sofina

Rs 99 Crore

Here’s a look at how sales and losses have grown at ” Myntra “.

    FY12 – FY13*

  FY11-FY12*

 

YoY Growth (%)

Sales & other income

Rs 2,124,917

Rs 671,614

216

Losses after Tax

Rs 1,347,626

Rs 512,631

162

* Indian Rupees in Thousand

Given that after Series F, there isn’t a lot of equity to play around with, “#Merger-withFlipkart is probably the only option” (there are very few other options for ” Myntra to explore a merger-synergy with”, now that ” eBay” is in bed with Snapdeal)..

Myntra Funding : Timeline:

  • February 2014 : $50 mn from Premji Invest,  Belgian Private equity firm Sofina and existing investors. At the time it was reportedly valued at $200 mn
  • February 2012 : $25 mn from Tiger Global, Accel Partners
  • November 2010 : $14 mn series B led by Accel Partners
  • November 2008 : $5 mn from NEA- IUV, IDG Ventures, Accel

This deal, we expect will happen at over $250 mn with Majority being Stock…Launched in 2007, by IIT alumni Mukesh Bansal, Ashutosh Lawania & Vineet Saxena, ” Myntra “ had started out as an online personalised merchandising solution to companies, before it revamped to its current model in 2011.

 

“Founder of UK Retailer, Sports Direct” in talks to “buy LA Fitness Gyms in UK” | by: Graham Ruddick | Telegraph,UK

“Sports Direct, UK ” could expand into the ” Gym / Fitness Club-chain industry” after opening talks to buy up to 33 gyms from LA Fitness, UK “….The talks represent another surprise move from the founder of the retailer, which has already bought stakes this year in “House of Fraser” and “Debenhams”..

Mr Ashley is in talks to acquire the leases on the LA Fitness gyms after the troubled company was forced to dispose of sites through a company voluntary agreement. It is unclear how Mr Ashley will brand the gyms but it is understood they will be operated by Sports Direct..

It is not unusual for a sports retailer to move into the Gym / Fitness Club-chain industry. Sports Direct’s rival JD Sports opened a gym in Hull earlier this year while Dave Whelan, the founder of JJB Sports, created DW Sports Fitness Clubs.

Sports Direct is likely to use its own sports-wear brands – such as Dunlop, boxing range Everlast, and fitness brand LA Gear – extensively throughout the new gyms.

 

LA Fitness runs 80 fitness clubs, including the 33 earmarked for sale…The company is owned by banks and its management team after being forced to restructure its finances in the face of fierce competition from traditional rivals such as Fitness First and up-and-coming budget chains such as The Gym Group..

Fitness First was rescued through a £550 mil debt-for-equity swap, which saw US hedge funds Oaktree Capital Management and Marathon Asset Management take control from BC Partners..

Fitness First is understood to have examined the LA Fitness leases that are up for sale but wants to focus on expanding in London. The majority of the 33 sites are outside the M25. They include clubs in Belfast, Birmingham and Manchester..

If Sports Direct secures the deal then it is likely to look for more gyms to acquire. Mr Ashley has offered landlords a guarantee on the lease from Sports Direct, offering security for property companies. Sports Direct declined to comment.

The move into gyms could open a new avenue of growth for Sports Direct. Revenues and profits have been increasingly rapidly in its high street stores following the demise of main rival JJB…Shares in Sports Direct stand at 768p, more than double its float price in 2007.

However, Mr Ashley, who also owns Newcastle United, has a tempestuous relationship with the City….Shares in the company have fallen from a record high of 922p, in April after Mr Ashley sold more than £200 mil, of his stake in the retailer..

The share sale came just days after Sports Direct was forced to shelve a £70 mil, bonus for its founder due to opposition from shareholders.

Dave Forsey, chief executive of Sports Direct, said the company was “extremely disappointed by investors blocking the share award and warned that it could lead to “further uncertainty in the future ”…The company is yet to make public its intentions for the minority interests in “Debenhams” and “House of Fraser”.

Michael Sharp, the chief executive of “Debenhams”, said last month that he is talking to “Sports Direct” about placing its sports brands in “Debenhams” department stores.

“Sport Direct” owns 11 % of “House of Fraser”, with Chinese conglomerate “Sanpower” holding the remaining 89% …!!