India's economic agenda: An interview with Manmohan Singh
The prime minister discusses his plans to modernize the country's infrastructure, attract foreign investment, and create jobsall in the service of eliminating chronic poverty and disease in India.
Rajat K. Gupta
2005 Special Edition: Fulfilling India's promise
Prime Minister Manmohan Singh of India would like to finish a job he started in 1991. Then, as finance minister in a new government, Singh orchestrated the economic reforms that brought India back from the brink of bankruptcy and set it on a course that made it one of the world's fastest-growing economies. Among the changes were devaluing the rupee, dismantling the infuriatingly bureaucratic business permit system called the license raj, and opening the tightly closed economy to foreign companies. The economic reforms he put in place have been backed by successive national governments and have brought a measure of prosperity and respect to India.
Singh became prime minister in May 2004, when the Congress Party won a surprise victory in national elections. But Congress's triumph was the result of a populist backlash against economic reforms that were seen as benefiting just a few of the 1.1 billion people of India, a large portion of whom remain impoverished, and the party holds power through a loose coalition. Against this backdrop, some questioned whether Singh, the country's first Sikh prime minister and an economist by training, could preserve the reform program, much less move it forward.
In May 2005, after one year as prime minister, Singh himself rated his government's achievements at six out of ten, a performance he said was unsatisfactory. Rajat K. Gupta, a director in McKinsey's Stamford office, talked about the country's prospects with Singh on August 16, 2005, the day after his annual Independence Day address to the nation.
The Quarterly: Mr. Prime Minister, what are your aspirations for the country, and what progress do you think India has made? What are your priorities?
Manmohan Singh: The first and foremost priority is to finish the unfinished task which the founding fathers of our republic set out for us at the time of our independence: to get rid of chronic poverty, ignorance, and disease, which have afflicted millions and millions of our people. Great progress has been made. Particularly in the last 20 years, the India economy has done quite well, social indicators and development have improved, but we are not quite where we ought to be. The next 5 to 10 years are crucial for moving forward in areas to stimulate economic growth and also to ensure that this accelerated economic growth really benefits the poorest segments of our society. We need a growth rate of about 7 to 8 percent per annum, sustained over a period of the next 10 to 15 years. We need to underpin that growth by strong performance of our agriculture, strong performance of our physical and our social infrastructure. These are our key priorities.
The Quarterly: As we talk with our clients, the first question they ask about is infrastructure. Has India made enough progress?
Manmohan Singh: We have a lot of backlog in improving our infrastructure. We have made substantial progress. Work is in place to ensure that our road system is modernized. But our railway system also requires massive investments. We are working with the Japanese government to draw up a program in which the freight corridors between Mumbai1Delhi, MumbaiChennai,2 and DelhiKolkata3 can be modernized. Our estimate is that that will cost about 25 thousand crore of rupees , and that's our high priority as far as the railway system is concerned. We need to modernize our airports in a big way. Already plans are under way to modernize and expand the airport facilities in Delhi, Mumbai, Hyderabad, and Bangalore. We also are now in the process of modernizing our seaports. Privatization, public-private partnerships, and new initiatives have been tried.
My own estimate is that we need an investment of about $150 billion in the next seven to eight years to realize our ambition to provide our country with an infrastructure which is equal to the economic and social challenges that we face. I'm not saying that everything is in place, but I think that in the last year that our government has been in office we have set in motion the processes through innovative public-private partnerships to explore new pathways to make the infrastructure ambitions a realizable goal.
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The Quarterly: You started the reform process in the early '90s, and it's had some ups and downs. One item in that agenda was privatization. I wonder where that stands in your priorities and how you see that moving forward?
Manmohan Singh: We are a coalition government, and that limits our options in some ways. Privatization happens to be one such area. As somebody said, a politician before he can become a statesman has to remain in office long enough. So we have to make those compromises. As far as profitable public enterprises are concerned, especially those which are doing exceedingly well, we don't see that they have to be privatized. But these enterprises, if they want to raise resources for their own expansion, they are free to go to the market. The Common Minimum Program,4 which is the benchmark for us to assess where we want to go, talks about the navratnas.5 These navratnas are companies essentially in the oil sectors, the power sectors, which are doing really well and, other than going to the market to raise funds for their own expansion, our options are limited by what is stated in the Common Minimum Program.
But outside the navratnas, as I see it, the field is vastly open. For enterprises which are not navratnas, if we want to privatize, if we want to get more investment going into those things, I think all options are open. But I must confess to you that in the prevailing milieu, the thinking in our coalition is that for enterprises that are doing well under competitive conditions, we must have special justification to prove to our coalition colleagues that there is need for privatization.6
The Quarterly: Are you happy with the pace of foreign direct investment? And, specifically, how do you feel about foreign direct investment in retail?
Manmohan Singh: I do believe that India needs a lot more foreign direct investment than we've got, and we should have the ambition to move in the same league many other countries in our neighborhood are moving. We may not be able to reach where the Chinese are today, but there is no reason why we should not think big about the role of foreign direct investment, particularly in the areas relating to infrastructure, where our needs for investment are very large. We need new initiatives, management skills, and I do believe that direct foreign investment can play a very important role.
With regard to retail trade, I am convinced that we can work out a package that is fair, that entry of foreign enterprises into the retail trade will not hurt our small shopkeepers but will create a lot more employment. We have to carry conviction with our political colleagues. I am confident that over a period of time we can do that. But for the time being, I have my task cut out to carry conviction with our political colleagues that this is a way to move our economy to a higher growth pathto create new employment opportunitiesthat this is not a strategy to hurt the small shopkeepers in our country. So I have my task cut out. In the next four or five months, I propose to engage myself in this task.
Continued...
The Quarterly: The reform process must also incorporate labor reform. I wonder how you feel about that, especially since labor has to be retrained and redirected in many ways for the economy to become more productive.
Manmohan Singh: First of all, we must make a distinction. When we talk about labor reforms, we are essentially talking about 10 percent of our labor force, which is accounted for in the so-called organized sector.7 Outside this 10 percent, for the 90 percent we are a completely flexible labor market. The normal laws of the market take precedence. Even within this organized sector, the problem is most acute in the public sector. In the private sector, most people tell me that they can find ways and means of working out voluntary agreements with the trade unions, whereby necessary labor flexibility can be introduced. In the public sector, we have rigid laws, and therefore there is this problem.
New enterprises, particularly if they are foreign-backed enterprises, do ask this question. And it is a legitimate question. We cannot move straightaway to the Western or the American model of hire and fire, quite frankly. I don't see that there is today a climate of opinion which will go to that extreme. We have to look at the Southeast Asian example, and probably the Japanese. The Japanese for a long period had a different labor-management system.
So we have a problem, there is no doubt. Extreme rigidities in the labor market, inflexibility of the labor market, is not consistent in our achieving our goals in a world where demand conditions are changing so fast, technological conditions are changing so fast. But there are limitations for the time being. We don't have a broad-based consensus in our coalition for me to assert that I can move forward in a big way. But I do recognize that we should take credible action. Our colleagues who are in government in West Bengal . . . do appreciate the need for labor market flexibility. It is my task to carry conviction to our Left colleagues in Delhi. I haven't given up, and I am confident that when all things are considered I think the reform will have more broad-based support. Our coalition today represents nearly 70 percent of the Indian electorate, so we may be slow moving, but if we build a consensus, that will be far more durable than any other mechanism that I know of.
The Quarterly: That is encouraging about the West Bengal government. I understand that it is progressive on many labor issues, even though it is a Communist government.
Manmohan Singh: Even in areas of privatizations they are moving, and moving forward. Our role is to convince their national leadership that what is good for West Bengal can also be good for the rest of the country. I haven't given up hope. I have full confidence in the patriotism of our Left colleagues to believe that in the final analysis of what is good for India, they will also be on board.
The Quarterly: How will the government generate employment, particularly in light of making sure there are enough jobs for the youth coming into the workforce?
Manmohan Singh: Jobs have to be created in all sectors of our economy. Agriculture still accounts for 60 percent of our labor force, and I believe that we will need a second green revolution to increase production and productivity, and in the process, I hope, we will create more jobs. But essentially over a period of time, our salvation lies in getting people to move out of agriculture. Services today account for 50 percent of our GDP. There are lots of people who tell me that services cannot move far ahead of what's happening in manufacturing, and that worries methis imbalance. I feel we have to do a lot more on manufacturing because, ultimately, services respond to what's happening in the production sector.
So outside agriculture, in manufacturing and services, we must create a lot more jobs. But that also means that we must ensure that our systems of general education and technical education are in line with the job requirements that a more modern manufacturing and a more modern services sector would require. We have to walk on two legs. We have to create conditions in which manufacturing and servicesthe economy outside agriculturemove and move fast enough. And at the same time the working force that is available must have skills which will fit the kind of jobs which will be in demand.
The Quarterly: What is the government doing to promote India as a manufacturing base, especially agribusiness and food processing, which must be important?
Manmohan Singh: Agribusiness and food processing are important parts of modernizing our economy, of modernizing our agriculture and moving into a phase where a more modernized agriculture helps not only farmers but also helps consumers. Now, I've talked to a large number of producerspeople from Hindustan Lever and othersand they've been telling me what India needs most is a unified food law.8 We have just now prepared the bill, and it will be introduced in parliament. The other thing to move forward on this front is that we must have electricity in our rural areas, we must have cold-storage facilities. We have, for the next four to five years, a very ambitious plan to expand . . . the availability of electricity to all of our villages. I hope that that should bring about a new revolution in the handling of agribusiness.
The Quarterly: We've seen uncontrolled urbanization in many parts of the world, which really does not improve the standard of living. What is the plan to promote truly effective, productive urbanization as, by necessity, the rural population moves toward the urban centers?
Manmohan Singh: This has to be a fairly controlled operation. The premature migration of very large numbers of people from rural areas to urban areas can give rise to a lot of strains to the urban infrastructure, which can also create problems of crimelaw-and-order problems. But we have to recognize that is the inevitable outcome of the processes of growth and the processes of modernization.
Our urban areas need a lot more attention in terms of investment. In my Independence Day speech yesterday,9 I pointed out that already about 30 percent of India's population lives in cities. In states like Maharashtra,10 40 to 45 percent of the population is in urban areas. I expect over the next 10 to 15 years that we will move to a situation where about 50 percent of our population will be in urban areas. We need new strategies to look at urban transportation systems, urban management of solid wastes, new sewerage systems.
This itself would require Herculean efforts of investment, but I don't believe that resources will be a constraint. Our statisticians now tell me that our savings rate has shot up in the last couple of years to about 27 to 28 percent of our GDP. And also we are a country where the proportion of young people to total population is increasing. All demographers tell me that if we can find productive jobs for this young labor force, that itself should bring about a significant increase in India's savings rate in the next five to ten years. If our savings rate goes up, let us say, in the next ten years, by 5 percent of GDP, we would have generated the resources for investment in the management of this new urban infrastructure that we need in order to make a success of our attempt at modernization and growth.
The Quarterly: What is India doing to make sure that its economic success continues, by building on both the primary-education system and the higher-education system? Related to that is health. The government spends very little on health and health infrastructure.
Manmohan Singh: You are right. As a nation, we should be doing more in both health and education. But our total expenditure on health, public and private, does not compare unfavorably with other Southeast Asian countriesabout 6 percent of GDP. But the mix between the public and private spending is excessively in favor of private spending. Our public expenditure on health is less than 1 percent of GDP. There are neglected areas where the public sector has a major responsibility: for primary health care, rural health care. Our ambition, which we have set out in our Common Minimum Program, is for the next four or five years to raise the public spending on health as a proportion of GDP to at least 2 percent.
With regard to education, I think at the top we have an excellent superstructure. The IIMs and IITs,11 the regional engineering colleges, they have served us well. But ultimately, if the educational pyramid is not right there are limits to getting dividends. Therefore we are making, for the first time, the most determined effort to ensure that all our childrenparticularly children coming from disadvantaged families, particularly the girl childin the next four or five years have the benefit of minimum primary schooling. But that will generate demand for upgrading the quality of our secondary schools. We have not given that much attention toward upgrading our secondary-school system, and that is our next step. After what we have done in the last one year, primary education is well looked after. What we have now in place is a system which will ensure that all our children who are of school-going age are in primary school. But the secondary-school system will require a major effort, and it worries me.
'We will attend to that because I believe empowering our people means empowering by investing more in their education and health'
When I look at countries like South Korea, all children who are of secondary-school-going age are in school; our children drop out even before they complete primary school. Therefore, yesterday, in my address to the nation, I laid a great deal of emphasis toward improving the quality of our education, both at the primary level and the secondary level. We will attend to that because I believe empowering our people means empowering by investing more in their education and health.
And as far as the system of higher education and research is concerned, I just appointed, under Sam Pitroda,12 a knowledge commission to look at what needs to be done, where we are, and where we ought to be. In the next one or two years, the knowledge sector will receive our attention to the extent that it deserves. I do recognize that India has to be the center, the hub of activity as far as the knowledge economy is concerned. We don't want to miss the chance.
The Quarterly: May I ask a somewhat difficult question? Whenever people discuss India, everyone can talk articulately about the changes that are needed. But in the end, the pace of implementation and actual results often lag behind. There isn't that kind of action bias that you would like to see in the country. Do you agree, and what are you doing to change this?
Manmohan Singh: I think you are right, but one must understand that economic policy and decision making do not function in a political vacuum. It takes a lot of time for us to take basic decisions. And furthermore, because we are a federal set-up, there are a lot of things that the central government does, but there are many things, like getting land, getting water, getting electricityin all these matters the state government comes in, the local authority comes in. . . . From a political-management point of view, we cannot do without being a federal system, but I do recognize that at times it gives our system the label that it is slow moving. In a world in which technology is changing at such a fast pace, where demand conditions change very fast, we need to look at a more innovative mechanism to cut down on this rigmarole of many tiers of decision-making processes.
I am thinking of identifying areas where we need big thrusts forward. For example, steel is one sector where we are thinking about investing large amounts of money. Our own domestic steelmakers are very bullish in investment in this area. We've got the Koreans involved in building a steel plant of 12 million tons' capacity. Right from the beginning the center and the state governments were working together to ensure that whatever milestones are agreed upon, those milestones were trackedhow they move forward, whether the work proceeds, if there are bottlenecks, to identify those bottlenecks and ensure that those bottlenecks are resolved. For all major projects, this is what I would like to do. It is my intention to set up a mechanism which would bring about a convergence in what the state governments do and what the central government does: a group of dedicated officers to work together to ensure that our three-tiered system of government does not become a bottleneck.
The Quarterly: What message would you like to give global managers as they think about India?
Manmohan Singh: If I have any message, it is that it is our ambition to integrate our country into the evolving global economy. We accept the logic of globalization. We recognize that globalization offers us enormous opportunities in the race to leapfrog in development processes. It also obliges us to set in motion processes which would minimize its risks.
I think, overall, India is today on the move. The economic reforms that our salvation lies inoperating an open society, political system, an open economy, economic systemthis has widespread support. Fifteen years ago, a Congress government launched this economic-liberalization program, integrating India into the world economy. Since then, three governments have come and gone, but the direction of economic policy has been, year after year, toward more liberalization. The pace may be slow, may not be as quick as some people would want, but the direction is unmistakable. India's future lies in being an open society, an open polity, a functioning democracy respecting all fundamental human freedoms, accepting the rule of law and, at the same time, to emerge as a successful, internationally competitive market economy.
Source : McKinsey Quaterly
I was exactly looking for something of this sort...
how come I never came across this post till now...
Hello ppl
I have a major doubt why does the SENSEX range between 10K to 11K while the nifty around 3K when both represent the same market.
chao
Edison
Hello ppl
I have a major doubt why does the SENSEX range between 10K to 11K while the nifty around 3K when both represent the same market.
chao
Edison
Sensex is calculated on the basis of stock prices of 30 companies which have the highest market capitalisation...whereas in NIfty there are 50 companies...that's why difference in price index...
Hello ppl
I have a major doubt why does the SENSEX range between 10K to 11K while the nifty around 3K when both represent the same market.
chao
Edison
Hi Edison ... the basic difference between sensex and nifty is tht sensex comprises of 30 stocks and the nifty of 50 stocks... the sensex n the niftty move as per the weighted average of their respective stocks....
http://www.pagalguy.com/discussions/mission-possible-a-guide-2-eco-and-business-discussion-25012243
hi friends i think there is lot of stuff in this thread about bse and nse . it wouls surely clear your all dobts .
i also think one dedicated thread in this regard would help us more rather than 5 which are presently going on
hi friends i think there is lot of stuff in this thread about bse and nse . it wouls surely clear your all dobts .
i also think one dedicated thread in this regard would help us more rather than 5 which are presently going on
hey
sorry to break the link of the topic
but if any1 has applied for MBA@I2IT
then pls contact me at
[email protected] on yahoo messenger
[email protected] on msn messenger
Forget about the Gates Foundation. The world's biggest charity owns IKEAand is devoted to interior design
FEW tasks are more exasperating than trying to assemble flat-pack furniture from IKEA. But even that is simple compared with piecing together the accounts of the world's largest home-furnishing retailer. Much has been written about IKEA's remarkably effective retail formula. The Economist has investigated the group's no less astonishing finances.
What emerges is an outfit that ingeniously exploits the quirks of different jurisdictions to create a charity, dedicated to a somewhat banal cause, that is not only the world's richest foundation, but is at the moment also one of its least generous. The overall set-up of IKEA minimises tax and disclosure, handsomely rewards the founding Kamprad family and makes IKEA immune to a takeover. And if that seems too good to be true, it is: these arrangements are extremely hard to undo. The benefits from all this ingenuity come at the price of a huge constraint on the successors to Ingvar Kamprad, the store's founder (pictured above), to do with IKEA as they see fit.
Although IKEA is one of Sweden's best-known exports, it has not in a strict legal sense been Swedish since the early 1980s. The store has made its name by supplying Scandinavian designs at Asian prices. Unusually among retailers, it has managed its international expansion without stumbling. Indeed, its brandwhich stands for clean, green and attractive design and value for moneyis as potent today as it has been at any time in more than 50 years in business.
The parent for all IKEA companiesthe operator of 207 of the 235 worldwide IKEA storesis Ingka Holding, a private Dutch-registered company. Ingka Holding, in turn, belongs entirely to Stichting Ingka Foundation. This is a Dutch-registered, tax-exempt, non-profit-making legal entity, which was given the shares of Mr Kamprad in 1982. Stichtingen, or foundations, are the most common form of not-for-profit organisation in the Netherlands; tens of thousands of them are registered.
Most Dutch stichtingen are tiny, but if Stichting Ingka Foundation were listed it would be one of the Netherlands' ten largest companies by market value. Its main asset is the Ingka Holding group, which is conservatively financed and highly profitable: post-tax profits were 1.4 billion ($1.7 billion)an impressive margin of nearly 11% on sales of 12.8 billionin the year to August 31st 2004, the latest year for which the group has filed accounts.
Valuing the Inkga Holding group is awkward, because IKEA has no direct competitors that operate globally. Shares in Target, a large, successful chain of stores in the United States that makes a fifth of its sales from home furnishings, are priced at 20 times the store's latest full-year earnings. Using that price/earnings ratio, the Ingka Holding group is worth 28 billion ($36 billion).
This is probably conservative, given IKEA's growth prospects. Salesthe only financial information that IKEA releasesfor the year to August 31st 2005 were 14.8 billion, 15.6% up on a year earlier. And there is plenty of scope for more stores. Ingka Holding has only 26 outlets in America. By contrast, in Europe, a market of comparable size, it has over 160, accounting for more than 80% of its total turnover. In April IKEA opened its first store in Japan.
If Stichting Ingka Foundation has net worth of at least $36 billion it would be the world's wealthiest charity. Its value easily exceeds the $26.9 billion shown in the latest published accounts of the Bill & Melinda Gates Foundation, which is commonly awarded that accolade.
Measured by good works, however, the Gates Foundation wins hands down. It devotes most of its resources to curing the diseases of the world's poor. By contrast the Kamprad billions are dedicated to innovation in the field of architectural and interior design. The articles of association of Stichting Ingka Foundation, a public record in the Netherlands, state that this object cannot be amended. Even a Dutch court can make only minor changes to the stichting's aims.
The Kamprad foundations compare poorly with the Gates Foundation in other ways, too. The American charity operates transparently, publishing, for instance, details of every grant it makes. But Dutch foundations are very loosely regulated and are subject to little or no third-party oversight. They are not, for instance, legally obliged to publish their accounts.
Under its articles, Stichting Ingka Foundation channels its funds to Stichting IKEA Foundation, another Dutch-registered foundation with identical aims, and which actually doles out money for worthy interior-design ideas. But the second foundation does not publish any information either. So just howor whetherStichting Ingka Foundation has spent the 1.6 billion that it collected in dividends from Ingka Holding in 1998-2003 remains hidden from view.
IKEA says only that this money is used for charitable purposes and for investing long-term in order to build a reserve for securing the IKEA group, in case of any future capital requirements. IKEA adds that in the past two years donations have been concentrated on the Lund Institute of Technology in Sweden. The Lund Institute says it has recently received SKr12.5m ($1.7m) a year from Stichting Ikea (which also gave the institute a lump sum of SKr55m in the late 1990s). That is barely a rounding error in the foundation's assets. Clearly, the world of interior design is being tragically deprived, as the foundation devotes itself to building its own reserves in case IKEA needs capital.
Although Mr Kamprad has given up ownership of IKEA, the stichting means that his control over the group is absolutely secure. A five-person executive committee, chaired by Mr Kamprad, runs the foundation. This committee appoints the boards of Ingka Holding, approves any changes to the company's statutes, and has pre-emption rights on new share issues.
Mr Kamprad's wife and a Swiss lawyer have also been members of this committee, which takes most of its decisions by simple majority, since the foundation was set up. When one member of the committee quits or dies, the remaining four appoint his replacement. In other words, Mr Kamprad is able to exercise control of Ingka Holding as if he were still its owner. In theory, nothing can happen at IKEA without the committee's agreement.
That control is so tight that not even Mr Kamprad's heirs can loosen it after his death. The foundation's objects require it to obtain and manage shares in the Ingka Holding group. Other clauses of its articles require the foundation to manage its shareholding in a way to ensure the continuity and growth of the IKEA group. The shares can be sold only to another foundation with the same objects and executive committee, and the foundation can be dissolved only through insolvency.
Yet, though control over IKEA is locked up, the money is not. Mr Kamprad left a trapdoor for getting funds out of the business, even if its ownership and control cannot change. The IKEA trademark and concept is owned by Inter IKEA Systems, another private Dutch company, but not part of the Ingka Holding group. Its parent company is Inter IKEA Holding, registered in Luxembourg. This, in turn, belongs to an identically named company in the Netherlands Antilles, run by a trust company in Curaao. Although the beneficial owners remain hidden from viewIKEA refuses to identify themthey are almost certain to be members of the Kamprad family.
Inter IKEA earns its money from the franchise agreements it has with each IKEA store. These are extremely lucrative: IKEA says that all franchisees pay 3% of sales. The Ingka Holding group, the company owned by the Kamprad foundation, is the biggest franchisee, with its 207 stores; other franchisees run the remaining 28 stores, which are mainly in the Middle East and Asia.
How much money does Inter IKEA Systems make? Its results are included in its parent company's accounts filed in Luxembourg. These show that in 2004 the Inter IKEA group collected 631m in franchise fees and made pre-tax profits of 225m. This profit is after deducting 590m of other operating charges.
Although IKEA would not explain these charges, because its policy is not to comment on the accounts of a private group of companies, Inter IKEA appears to make large payments to I.I. Holding, another Luxembourg-registered group that is almost certain to be controlled by the Kamprad family and which made a profit of 328m in 2004.
Together these companies had nearly 11.9 billion in cash and securities at the end of 2004, even after I.I. Holding paid out a dividend of nearly 800m during the year. Most of this money has undoubtedly come from the collection of franchise fees. In total, these two groups suffered tax bills of a mere 19m in 2004 on their combined profits of 553m. Clearly, the Kamprad family pays the same meticulous attention to tax avoidance as IKEA does to low prices in its stores.
The IKEA financial system of stichtingen and holding companies is extremely efficient. Even so, next time you wonder how anyone could have come up with the fiendish plans for a Hensvik storage unit or a Bjursta sideboard, spare a thought for the Kamprads' accountants.
Source : Economist
Can Wikipedia Survive Its Own Success?
It's not easy being Wikipedia, a free web encyclopedia created and edited by anonymous contributors. Just ask founder Jimmy Wales, who has seen his creation come under fire in just a few short months as the site fends off vandalism and charges of inaccurate entries. "Wikipedia has always been in a state of change," says Wales, in defense of his product.
That's putting it mildly.
On November 29, journalist John Seigenthaler, Sr., once a member of Robert Kennedy's staff, penned an op-ed piece in USA Today noting that an article on Wikipedia had incorrectly linked him to the assassination of Robert Kennedy and John F. Kennedy. The article, which stayed on the site for four months, stated that "John Seigenthaler, Sr. was the assistant to Attorney General Robert Kennedy in the early 1960s. For a brief time, he was thought to have been directly involved in the Kennedy assassinations of both John and his brother Bobby. Nothing was ever proven." Wikipedia eventually deleted the inaccurate information, and now even contains an entry entitled, "John Seigenthaler, Sr. Wikipedia biography controversy" explaining the history of its own error.
And last month, former MTV VJ and podcasting pioneer Adam Curry was accused of editing out Wikipedia's references to Kevin Marks, another early podcasting luminary. In a December 2 blog entry, Curry owned up to the switch and apologized.
Today, popular or potentially controversial Wikipedia entries, such as one on George W. Bush, greet readers with the following: "In response to recent vandalism, editing of this page by new or anonymous users has been temporarily disabled. Please discuss possible changes or request unprotection."
Wikipedia, founded in 2001 as a non-profit organization and supported mainly by donations, allows anyone with Internet access to edit its articles. The premise is that collective knowledge, which some call "open source" content, is every bit as valuable as professionally edited content. As a result, Wikipedia has become a hybrid encyclopedia/current events site that raises a number of interesting questions, including: Just how accurate is free content, given recent events at Wikipedia? Does the aggregate 'wisdom of the crowd' trump the expertise of knowledgeable individuals? Does Wikipedia's policing mechanism work? Does the controversy over Wikipedia merely reflect further tension between old and new media?
The answer to all those questions, according to experts at Wharton, boils down to two words: It depends. According to Eric Clemons, professor of operations and information management, it is foolish to take Wikipedia's definitions as gospel, but the site is still worth reading from time to time. Marketing professor Peter Fader notes that Wikipedia shows there is wisdom in crowds, but a better user rating system would filter out those who post bogus information. Joel Waldfogel, professor of business and public policy, agrees that much of the concern about Wikipedia is just a new spin on whether old media (printed encyclopedias, in this case) stand a chance against the new breed of instantly updatable online media.
For Kendall Whitehouse, senior director of information technology at Wharton, the most interesting question is "whether the wisdom of the crowd is ultimately a better approach compared to scholarly review and edited content." As Whitehouse observes, "Wikipedia's strength is that it has thousands of eyes looking at it. The hope is that errors will be quickly caught and corrected." But Whitehouse also points out that as the scale of Wikipedia's content expands even a thousand eyes can miss certain details -- which is apparently what happened in the case of the Seigenthaler material.
Wales doesn't dismiss concerns about Wikipedia and notes that he has implemented changes to prevent abuse, such as only allowing registered users to make certain types of changes. He adds, however, that Wikipedia has been slammed for mistakes simply because it's relatively new, and he compares the attention swirling around the site to stories that focused on quirky items for sale on eBay in 1999 and 2000. "The media loves a story," he says.
Growing Pains
Just the fact that Wikipedia has attracted so much attention indicates the clout it has achieved since being created almost five years ago. Indeed, a December 14 study of 42 entries by Nature magazine puts Wikipedia almost on a par with Britannica in terms of accurate science coverage. Nature found that the average science entry in Wikipedia had four errors while Britannica had three. The biggest complaint against Wikipedia was that the entries were confusing and poorly structured. Overall, concluded the Nature study, problems such as the Seigenthaler incident were the exception, not the rule.
Wikipedia has also grown at a rapid clip. There are 13,000 active contributors working on 1.8 million articles in more than 100 languages. On the English-language sites, 800 to 1,000 editors edit most of the entries, says Wales. According to Alexa, a web traffic tracking site, Wikipedia is the 37th most highly visited site on the Internet.
But with its clout comes additional scrutiny, says Fader, who views the most recent flaps about Seigenthaler, Curry and suggested policy changes as "tempests in a teapot. Wikipedia is as credible as anything else I find on the web. It comes up a lot ... but it doesn't mean that I stop my research there."
Indeed, the key may be putting Wikipedia into a broader context. It can be a research tool, but it's far from definitive. Wikipedia, itself, acknowledges this fact, noting on its site that "it differs from a paper-based reference source in some important ways. In particular, mature articles tend to be more comprehensive and balanced, while other (often fledgling) articles may still contain significant misinformation, unencyclopaedic content or vandalism. Users need to be aware of this in order to obtain valid information and avoid misinformation which has been recently added and not yet removed."
Despite that disclaimer, observers say Wikipedia is too often viewed as authoritative. David Winer, a software pioneer who contributed to several common standards used on the Internet and published one of the first weblogs, said in a June blog entry that the biggest issue with Wikipedia is that it is widely viewed as authoritative but "can easily be manipulated by people with an axe to grind."
Ari Friedman, a senior at Wharton who founded an online journal called Copyright that plans to adopt some of Wikipedia's techniques to vet copyright research and case studies, says it would be foolish to dismiss Wikipedia's open-content approach. But, he adds, there are trade-offs with disseminating information via the crowd approach. "The primary trade-off is not really 'speed for accuracy' as some might suggest, but rather 'speed for guarantee,'" says Friedman. "If the information absolutely must not be wrong for each and every person who views it, then collaborative content is not going to work very well."
Clemons notes that Wikipedia should never be the sole source of information. "I only use Wikipedia for things I know cold, looking for a terse description to share with my daughter doing homework so I don't have to write it myself. But if I don't know the subject, I would never consider Wikipedia as a source of information," he says, adding that the biggest issue is that Wikipedia provides no information on who posted the story, the writer's credentials or the motives behind changes.
Waldfogel agrees. "With these sites it is buyer beware. Anyone who is interested in the topic has to do more research. You can't think that these things are absolutely true."
At issue is whether collaborative content, such as Wikipedia, is up to standards of professionally-edited content. Wales acknowledges that some of the attention given to Wikipedia of late could be attributed to the ongoing debate over old media versus new media, but adds that the online encyclopedia functions more like a traditional editor driven outlet in which writers post articles and editors check them. "The way Wikipedia operates is far more traditional than people realize," says Wales. "We have a core group of editors who do the work."
Policing Wikipedia
What succeeded in getting Wikipedia to this juncture -- an open format where anyone can post articles -- may not work as the online encyclopedia continues to grow, says Fader. The issue: There is no rating system to lend credibility to people who create and edit articles. For instance, a system that keeps editors of articles anonymous, yet rates them much like eBay rates merchants, could enhance Wikipedia's credibility. A contributor known for accuracy or subject expertise would be given, say, five stars. A vandal or someone shamelessly plugging a product would get one star.
In response to recent events, Wales has made a few changes to better police the site. In addition to implementing a "semi-protection" policy where pages facing vandalism problems can only be edited by registered users with accounts older than four days, site administrators will add a delay to high profile pages, such as the President Bush page that is currently closed. The delay, similar to a "dump" button in radio that gives producers a few seconds to prevent something like crude language from hitting the airwaves, will mean that online vandals cannot quickly amend a page on a breaking news article, such as those posted when the Pope died. Wales notes that the length of the delay will be decided by the community on Wikipedia. "We have hundreds of people monitoring the site all the time. They will figure out the community norms."
Other changes are in development, but Wales didn't disclose anything specific, except to say that there are no plans to institute an eBay-like rating system such as the one Fader suggests. That type of system couldn't work and would "be destructive of the community," Wales suggests, because Wikipedia has 800 to 1,000 active editors. A rating system would be degrading as well as unrefined. For instance, a biologist may be an expert on biology topics, but turn into a ranting madman when it comes to the Israeli-Palestinian conflict. "In that example, the person would probably be rated a three-star overall," says Wales. "But the rating would lose the human judgment element. In our system, we learn over time that you need to keep an eye on that editor" when he or she is working on topics related to the Middle East.
Whitehouse acknowledges that some Wikipedia content may be inaccurate, but overall the policing system works. "Look at what Wikipedia has done in a short period of time. By and large, self policing has worked well."
Emerging Models
The challenge for Wikipedia will be to juggle the monitoring of highly visible pages and the low-traffic areas that harbor misinformation. "The process works when there is a back and forth that allows discussion and dialog," says Whitehouse. "The problem is policing the obscure articles no one is looking at."
It's unclear how the Wikipedia model will evolve, but some potential rivals have their own ideas. A site called Digital Universe recently launched offering "stewards" to review content and providing two tiers of articles -- those verified by experts and those not. The company bills itself as the "PBS of the Web" and a university of human thought and experience.
Friedman's Copyright, which will kick off in mid-February, is an open access, peer-reviewed journal on all aspects of copyright in the Internet age. Authors will submit detailed research, case studies and opinion pieces vetted by rapid peer review. Copyright will seek a balance between offering access to all users, but making sure information is accurate. According to Friedman, there is still a big role for collaborative content, but the filtering of vast amounts of information will become increasingly critical.
While Wikipedia is effective, it "allows anyone to post and just prays that the experts will wind up posting more than the malicious or incompetent," says Friedman. Copyright's approach will be open to all, but submissions will be vetted by, among others, Fader, Lawrence Lessig, a law professor at Stanford Law School, and William M. Landes, a law professor at the University of Chicago, before being published.
Experts at Wharton agree that Wikipedia will weather its most recent flap, but its model may have to be tweaked. Whitehouse suggests that citizen-authored content is a valuable contribution to knowledge, but there is still a place for more edited information. Wikipedia's challenge: Find the middle ground.
Source : Wharton
It's not easy being Wikipedia, a free web encyclopedia created and edited by anonymous contributors. Just ask founder Jimmy Wales, who has seen his creation come under fire in just a few short months as the site fends off vandalism and charges of inaccurate entries. "Wikipedia has always been in a state of change," says Wales, in defense of his product.
That's putting it mildly.
On November 29, journalist John Seigenthaler, Sr., once a member of Robert Kennedy's staff, penned an op-ed piece in USA Today noting that an article on Wikipedia had incorrectly linked him to the assassination of Robert Kennedy and John F. Kennedy. The article, which stayed on the site for four months, stated that "John Seigenthaler, Sr. was the assistant to Attorney General Robert Kennedy in the early 1960s. For a brief time, he was thought to have been directly involved in the Kennedy assassinations of both John and his brother Bobby. Nothing was ever proven." Wikipedia eventually deleted the inaccurate information, and now even contains an entry entitled, "John Seigenthaler, Sr. Wikipedia biography controversy" explaining the history of its own error.
And last month, former MTV VJ and podcasting pioneer Adam Curry was accused of editing out Wikipedia's references to Kevin Marks, another early podcasting luminary. In a December 2 blog entry, Curry owned up to the switch and apologized.
Today, popular or potentially controversial Wikipedia entries, such as one on George W. Bush, greet readers with the following: "In response to recent vandalism, editing of this page by new or anonymous users has been temporarily disabled. Please discuss possible changes or request unprotection."
Wikipedia, founded in 2001 as a non-profit organization and supported mainly by donations, allows anyone with Internet access to edit its articles. The premise is that collective knowledge, which some call "open source" content, is every bit as valuable as professionally edited content. As a result, Wikipedia has become a hybrid encyclopedia/current events site that raises a number of interesting questions, including: Just how accurate is free content, given recent events at Wikipedia? Does the aggregate 'wisdom of the crowd' trump the expertise of knowledgeable individuals? Does Wikipedia's policing mechanism work? Does the controversy over Wikipedia merely reflect further tension between old and new media?
The answer to all those questions, according to experts at Wharton, boils down to two words: It depends. According to Eric Clemons, professor of operations and information management, it is foolish to take Wikipedia's definitions as gospel, but the site is still worth reading from time to time. Marketing professor Peter Fader notes that Wikipedia shows there is wisdom in crowds, but a better user rating system would filter out those who post bogus information. Joel Waldfogel, professor of business and public policy, agrees that much of the concern about Wikipedia is just a new spin on whether old media (printed encyclopedias, in this case) stand a chance against the new breed of instantly updatable online media.
For Kendall Whitehouse, senior director of information technology at Wharton, the most interesting question is "whether the wisdom of the crowd is ultimately a better approach compared to scholarly review and edited content." As Whitehouse observes, "Wikipedia's strength is that it has thousands of eyes looking at it. The hope is that errors will be quickly caught and corrected." But Whitehouse also points out that as the scale of Wikipedia's content expands even a thousand eyes can miss certain details -- which is apparently what happened in the case of the Seigenthaler material.
Wales doesn't dismiss concerns about Wikipedia and notes that he has implemented changes to prevent abuse, such as only allowing registered users to make certain types of changes. He adds, however, that Wikipedia has been slammed for mistakes simply because it's relatively new, and he compares the attention swirling around the site to stories that focused on quirky items for sale on eBay in 1999 and 2000. "The media loves a story," he says.
Growing Pains
Just the fact that Wikipedia has attracted so much attention indicates the clout it has achieved since being created almost five years ago. Indeed, a December 14 study of 42 entries by Nature magazine puts Wikipedia almost on a par with Britannica in terms of accurate science coverage. Nature found that the average science entry in Wikipedia had four errors while Britannica had three. The biggest complaint against Wikipedia was that the entries were confusing and poorly structured. Overall, concluded the Nature study, problems such as the Seigenthaler incident were the exception, not the rule.
Wikipedia has also grown at a rapid clip. There are 13,000 active contributors working on 1.8 million articles in more than 100 languages. On the English-language sites, 800 to 1,000 editors edit most of the entries, says Wales. According to Alexa, a web traffic tracking site, Wikipedia is the 37th most highly visited site on the Internet.
But with its clout comes additional scrutiny, says Fader, who views the most recent flaps about Seigenthaler, Curry and suggested policy changes as "tempests in a teapot. Wikipedia is as credible as anything else I find on the web. It comes up a lot ... but it doesn't mean that I stop my research there."
Indeed, the key may be putting Wikipedia into a broader context. It can be a research tool, but it's far from definitive. Wikipedia, itself, acknowledges this fact, noting on its site that "it differs from a paper-based reference source in some important ways. In particular, mature articles tend to be more comprehensive and balanced, while other (often fledgling) articles may still contain significant misinformation, unencyclopaedic content or vandalism. Users need to be aware of this in order to obtain valid information and avoid misinformation which has been recently added and not yet removed."
Despite that disclaimer, observers say Wikipedia is too often viewed as authoritative. David Winer, a software pioneer who contributed to several common standards used on the Internet and published one of the first weblogs, said in a June blog entry that the biggest issue with Wikipedia is that it is widely viewed as authoritative but "can easily be manipulated by people with an axe to grind."
Ari Friedman, a senior at Wharton who founded an online journal called Copyright that plans to adopt some of Wikipedia's techniques to vet copyright research and case studies, says it would be foolish to dismiss Wikipedia's open-content approach. But, he adds, there are trade-offs with disseminating information via the crowd approach. "The primary trade-off is not really 'speed for accuracy' as some might suggest, but rather 'speed for guarantee,'" says Friedman. "If the information absolutely must not be wrong for each and every person who views it, then collaborative content is not going to work very well."
Clemons notes that Wikipedia should never be the sole source of information. "I only use Wikipedia for things I know cold, looking for a terse description to share with my daughter doing homework so I don't have to write it myself. But if I don't know the subject, I would never consider Wikipedia as a source of information," he says, adding that the biggest issue is that Wikipedia provides no information on who posted the story, the writer's credentials or the motives behind changes.
Waldfogel agrees. "With these sites it is buyer beware. Anyone who is interested in the topic has to do more research. You can't think that these things are absolutely true."
At issue is whether collaborative content, such as Wikipedia, is up to standards of professionally-edited content. Wales acknowledges that some of the attention given to Wikipedia of late could be attributed to the ongoing debate over old media versus new media, but adds that the online encyclopedia functions more like a traditional editor driven outlet in which writers post articles and editors check them. "The way Wikipedia operates is far more traditional than people realize," says Wales. "We have a core group of editors who do the work."
Policing Wikipedia
What succeeded in getting Wikipedia to this juncture -- an open format where anyone can post articles -- may not work as the online encyclopedia continues to grow, says Fader. The issue: There is no rating system to lend credibility to people who create and edit articles. For instance, a system that keeps editors of articles anonymous, yet rates them much like eBay rates merchants, could enhance Wikipedia's credibility. A contributor known for accuracy or subject expertise would be given, say, five stars. A vandal or someone shamelessly plugging a product would get one star.
In response to recent events, Wales has made a few changes to better police the site. In addition to implementing a "semi-protection" policy where pages facing vandalism problems can only be edited by registered users with accounts older than four days, site administrators will add a delay to high profile pages, such as the President Bush page that is currently closed. The delay, similar to a "dump" button in radio that gives producers a few seconds to prevent something like crude language from hitting the airwaves, will mean that online vandals cannot quickly amend a page on a breaking news article, such as those posted when the Pope died. Wales notes that the length of the delay will be decided by the community on Wikipedia. "We have hundreds of people monitoring the site all the time. They will figure out the community norms."
Other changes are in development, but Wales didn't disclose anything specific, except to say that there are no plans to institute an eBay-like rating system such as the one Fader suggests. That type of system couldn't work and would "be destructive of the community," Wales suggests, because Wikipedia has 800 to 1,000 active editors. A rating system would be degrading as well as unrefined. For instance, a biologist may be an expert on biology topics, but turn into a ranting madman when it comes to the Israeli-Palestinian conflict. "In that example, the person would probably be rated a three-star overall," says Wales. "But the rating would lose the human judgment element. In our system, we learn over time that you need to keep an eye on that editor" when he or she is working on topics related to the Middle East.
Whitehouse acknowledges that some Wikipedia content may be inaccurate, but overall the policing system works. "Look at what Wikipedia has done in a short period of time. By and large, self policing has worked well."
Emerging Models
The challenge for Wikipedia will be to juggle the monitoring of highly visible pages and the low-traffic areas that harbor misinformation. "The process works when there is a back and forth that allows discussion and dialog," says Whitehouse. "The problem is policing the obscure articles no one is looking at."
It's unclear how the Wikipedia model will evolve, but some potential rivals have their own ideas. A site called Digital Universe recently launched offering "stewards" to review content and providing two tiers of articles -- those verified by experts and those not. The company bills itself as the "PBS of the Web" and a university of human thought and experience.
Friedman's Copyright, which will kick off in mid-February, is an open access, peer-reviewed journal on all aspects of copyright in the Internet age. Authors will submit detailed research, case studies and opinion pieces vetted by rapid peer review. Copyright will seek a balance between offering access to all users, but making sure information is accurate. According to Friedman, there is still a big role for collaborative content, but the filtering of vast amounts of information will become increasingly critical.
While Wikipedia is effective, it "allows anyone to post and just prays that the experts will wind up posting more than the malicious or incompetent," says Friedman. Copyright's approach will be open to all, but submissions will be vetted by, among others, Fader, Lawrence Lessig, a law professor at Stanford Law School, and William M. Landes, a law professor at the University of Chicago, before being published.
Experts at Wharton agree that Wikipedia will weather its most recent flap, but its model may have to be tweaked. Whitehouse suggests that citizen-authored content is a valuable contribution to knowledge, but there is still a place for more edited information. Wikipedia's challenge: Find the middle ground.
Source : Wharton
hi all
a good article on Kyoto Protocol...
very objectively i would say...its regarding carbon credits..that a energy co/ can avail for being environmental friendly... n trade those credits with nations for monetay benefits..............more posts on it later!
Kyoto treaty benefits only the rich nations'
As the Kyoto Protocol came into force across the world tomorrow, representatives of several social and environmental organisations, communities and movements alleged that the 1997 climate treaty not only failed to reduce greenhouse gas emissions enough to avert climate catastrophe but stole from the poor to give to the rich.
The Durban Group, a conglomerate of concerned parties, pointed out that the Kyoto Protocol stipulates that the industrialised country signatories must reduce their emissions by 5.2 per cent from their 1990 levels by 2008-2012.
However, the scientific community has called for global reductions of over 60 per cent below 1990 levels, a statement issued by the Group said here today.
What is more, the carbon trading promoted by the Protocol has handed over to governments and corporations, lucrative tradable rights to use the Earth's natural carbon-cycling capacity, effectively stealing a public good away from most of the planet's inhabitants, the statement said.
India, though it contributed less than 50 per cent of the world's total green house gas emissions, is fast emerging as a major playground for emission traders engaged in Clean Development Mechanism projects that allow them pollution rights in exchange for investing in or setting up "carbon-saving" plants.
With the Kyoto Protocol coming into force, it is expected that these "nefarious investments'' in India could significantly increase at great costs to environment and also to the people.
Members of the Durban Group today sent an open letter to the U.N. Secretary-General pointing out the United Nation's failure to take constructive action and giving notice of their intention to build independent alliances to "press governments to limit fossil fuel extraction and use while supporting grassroots alliances struggling against fossil fuel exploration, extraction and use and against unjust climate mitigation projects.''
an article on .... GENERAL MOTORS ...... in THE ECONOMIST.....
Decline and fall, cont'd
May 11th 2006 | DETROIT
From The Economist
Relief for the beleaguered car firm is likely to prove temporary
GENERAL MOTORS at last got some good news on May 8th. The Securities and Exchange Commission approved some accounting tweaks that turned a $323m first-quarter loss into a rare $445m profit. But GM's losses on its North American automotive operations, although halved, were still a painful $462m. And there is more bad news in the offing. A looming strike at Delphi, a bankrupt parts supplier, could have disastrous knock-on effects for GM.
The Delphi management is demanding big pay cuts from its American workforce. The United Auto Workers (UAW) union is preparing to authorise a strike should the courts approve Delphi's request to scrap its existing labour agreements. Such a move could quickly lead to parts shortages that would halt GM's American assembly lines. Even if Delphi and the union avoid a confrontation, as a New York judge considers the request over coming weeks, a settlement would probably worsen GM's weak finances. Delphi was once part of GM, which still has financial obligations to the firm. GM has already set aside about $5.5 billion to cover worker buyouts and other costs related to Delphi, but the supplier's chief executive, Steve Miller, believes billions more are needed.
Not that many years ago, GM could have handed over that sum without blinking, but its cash pile has been dwindling, even as its Japanese arch-rival, Toyota, fills a war chest-and uses it to devastating effect. On May 10th Toyota announced that it had made $12.1 billion in profits in the past fiscal year. Its stockmarket value is now 15 times that of GM-and it is taking aim at the most profitable segments of the American market, full-size pick-up trucks. GM isn't giving up without a fight. It will introduce a new version of its own full-size pickups-the Chevrolet Silverado and GMC Sierra-later this year. But while these big new models were being developed, America's petrol prices nearly doubled and consumers are turning to smaller vehicles.
GM likes to give the impression that all its woes result from the high labour, pension and healthcare costs forced on it by the unions over the years. But that burden could be borne more easily if GM had held on to the one-third share of the market it enjoyed ten years ago. Throughout the 1990s the company paid too much attention to money management and marketing rather than developing good cars.
By the time Bob Lutz, with a reputation for product development at Chrysler, was brought out of retirement to fix things, it was too late to stop the steady slide in GM's market share down to 25%. Too many GM products are still mediocre, dragged down by cheap plastic interiors. Virtually every month, despite hefty incentives, GM's market share has slipped. Outside the Midwest, the firm risks becoming irrelevant to most car buyers.
Nor can it draw much comfort from foreign operations. True, losses are ending in Europe, China is still strong and Latin America has turned around. But its grand strategy of building stakes in overseas car firms-to share parts and technology to cut costs-has proved a flop outside China, as the stakes are sold to raise cash.
The longer GM's problems remain in the news-and the louder the murmurs grow of looming bankruptcy-the more consumers are liable to walk away. Analysts and investors seem evenly split on the possibility of GM eventually having to seek court protection from its creditors. After this week's profits restatement, GM shares bounced back by 9%. But despite the passionate assertion by Rick Wagoner, the firm's chief executive, that Chapter 11 is "not part of our strategy," the smaller GM gets, the harder it becomes to raise money to cover its massive legacy costs. The UAW boss, Ron Gettelfinger, has ruled out any further concessions before the next bargaining round in 2007.
Mr Wagoner deserves credit for his deft paring of costs and his dogged attempts to win concessions from the unions without provoking a strike. Late last year he announced the latest in a series of cuts that will slash assembly capacity and eliminate tens of thousands of jobs. But GM is still saddled with dire pension liabilities, made only more burdensome by America's roaring inflation in employer-funded health-care costs.
In January Jerry York, the front man for Kirk Kerkorian, a billionaire investor, gave warning that GM had 1,000 days worth of cash reserves left at today's burn rate. GM now has to invest in its products and hope that it finally gives customers what they want. Some analysts reckon that restoring GM's image could take a generation. Unfortunately, the firm does not have anything like that amount of time.
HEDGER
Microsoft announces that it will spend about $2 billion to fend off rivals such as Google and thwart Sony's video game ambitions, and the company loses more than $30 billion in market capitalization in a day. Fair trade or overreaction?
Probably a little of both, according to experts at Wharton. Microsoft certainly isn't hurting financially. The company reported net income of $2.98 billion on revenues of $10.9 billion for the quarter ending March 31. But the big question is whether that performance will be maintained over the next decade. According to Wharton finance professor Andrew Metrick, the reaction to Microsoft's increased spending plans for 2007, which were detailed in the company's fiscal third quarter earnings report April 27, may reveal concerns about what has become an increasingly competitive landscape. "Spending $2 billion doesn't lose you $30 billion in market cap," says Metrick. "Let's face it; $2 billion to Microsoft is like a pimple on an elephant. The reaction was the market inferring that the company is much more scared than investors thought it was about the future."
Indeed, Microsoft is a company in transition, and investors, customers and the entire technology industry would be wise to pay attention. At issue is whether Microsoft has grown too big to be nimble enough to compete with its long list of rivals on many fronts: Google in Internet search and advertising, Sony in video games with the launch of its Playstation 3 on November 17, Linux inside the corporation, and Apple Computer in digital media, to name just a few. Meanwhile, Microsoft's Vista operating system will miss the peak holiday season: While it will be available to volume-licensees in late 2006, other businesses as well as consumers won't see it until sometime in 2007. By extending its reach into new markets, such as mobile communications and digital entertainment, Microsoft may be stretching itself too thin without getting sufficient returns, say analysts.
Not that those concerns have stopped the Redmond, Washington-based software giant from investing heavily in new businesses, such as the money-losing Xbox game machine. For the nine months ending March 31, Microsoft home and entertainment division, which includes Xbox, had an operating loss of $848 million on revenues of $3.1 billion. Microsoft is a third place player in search behind Google and Yahoo, and its MSN unit posted a small loss in the third quarter. And Windows Live, an effort to provide some features of Microsoft's Windows platform as web-based services, is in its formative stages.
Don Huesman, senior director of information technology at Wharton, suggests that Microsoft's investments are designed to buy the company time to find a way to reinvent itself. By investing in new markets, Microsoft can "put itself into a holding pattern until it can remake the company," says Huesman. "The competition isn't just Google. Sooner or later in the future, you won't own software but have access to it ."
At a Silicon Valley event on May 11, Microsoft CEO Steve Ballmer acknowledged that the company's core business -- selling Windows and Office -- could change. "Software really is evolving to be software and service as opposed to software as some kind of standalone entity," he said.
Wharton operations and information management professor Eric Clemons says Microsoft's quest for new businesses may show that the company is a good student of history. IBM, for example, stayed with big mainframe computers too long and "missed both the rise of work-group mini-computers and the shift from hardware-based profitability to software-based profitability in the PC industry," says Clemons. "Maybe that's why Microsoft keeps trying to gain control in the net, gaming and other software areas. They don't want to be a big operating system company if the market moves to something completely different."
Given that Microsoft has no intention of losing its standing as a technology titan, it has an obligation -- not to mention its $34.8 billion in cash as of March 31 -- to invest heavily in new markets, says Wharton management professor Sarah Kaplan. "If wants to make a transformational change, it will need to make a transformational investment," she notes.
Creative Destruction
Transformational investments are one thing, but returns on those expenditures are another. In a May 4 research note, Sanford C. Bernstein analyst Charles DiBona questioned Microsoft's plan to invest what he estimates will become a $2.3 billion outlay. Of that sum, DiBona estimates $700 million will go toward shipping more Xbox consoles before Sony launches its new Playstation, $100 million will go to Chinese PC manufacturers to help market legitimate copies of Windows, and $1.5 billion will be spent on competing with Google on Internet advertising and web services. That last investment "is likely to persist indefinitely."
"Concern has grown that the company appears to be flailing at its opponents," writes DiBona. "Given Microsoft's recent struggles in the Internet space, many investors question the utility and wisdom of spending even more money to pursue what appears to be a losing battle. In the absence of greater insight into the spending, its necessity and its potential returns, the concern is that the spending is a waste."
Kaplan, however, argues that Microsoft should be experimenting with new markets and that even a failure isn't a waste of money. "A big company like Microsoft should be running a lot of (potentially conflicting) experiments. Only some will work out. Creativity must almost by definition involve failed experiments. That's why creative destruction is the essential dynamic of the marketplace."
DiBona's concerns, however, illustrate the hurdles Microsoft has to clear to declare a new venture a success, says Clemons. "Established companies have to think seriously about gambling to an extent that startups don't. If a couple of kids in a garage fail, they are out their time and their VC's money, while if they win, they win big time," Clemons notes. "This encourages risk-seeking behavior. If Microsoft, IBM or Apple fail, it's visible and gets press coverage that little guys don't have to worry about."
The solution: Buy breakthrough technology but don't invent it. "Big companies don't often invent break-through products like PC operating systems, or super premium ice creams or non-carbonated beverages; if they're smart and agile they buy the companies that make ," says Clemons.
Although Microsoft has followed Clemons' playbook and bought numerous companies to enter new markets -- most recently with Massive Inc., a company that provides advertising inside video games -- concerns persist that when it comes to the Internet the software giant is mired in a Vietnam-like quagmire against smaller rivals that it can't beat. Clemons says those concerns are overblown. While it's likely that Microsoft's goals to compete on multiple fronts may be based on a "domino theory" -- which says if the software giant loses in a category, then it could lose dominance on the operating system -- it's not rational as long as Microsoft software continues to run most of the computers globally.
Playing Defense
Because Windows is so dominant, all the investments made by Microsoft have to be viewed through the prism of the operating system -- and the annuity-like profit stream it provides, says Metrick. While many analysts consider Microsoft to be a hypercompetitive company that plays offense, Metrick portrays the company as a largely defensive and reactive one. In fact, Microsoft has no choice but to play defense when it comes to Windows: The software giant enjoys an operating system monopoly with profit margins that can't be replicated.
Microsoft is worth $236 billion as of May 12. If a startup becomes a company with $2 billion in annual revenue, it is considered a success. Microsoft would need more than 100 successful business launches just to keep its current market capitalization if the Windows and Office franchise were eroded. "There's nothing you can do to be offensive when you are talking about hundreds of billions of dollars," says Metrick. "All of these new ventures are small potatoes if you lose Windows and Office."
Viewed in that context, Microsoft's investments are really an attempt to look into the future to see where the threats to its earnings are. "Should Google succeed in slipping its platform between service-oriented applications and Windows, we estimate that a combination of slowing PC replacement, lost market share, pricing pressure and margin compression would eviscerate the Windows client franchise," DiBona writes.
And if that outcome were to happen, Microsoft could lose out in growth markets such as India and China, says Metrick. As a result, a $1.5 billion investment to erode Google's search dominance today is worthwhile if it keeps the Internet giant from denting Microsoft's operating system earnings in the future.
Given the long odds of a new venture becoming a Windows-like success, why would Microsoft bother with new markets? Microsoft's leaders are strategic and recognize that they have to defend the Windows business in subtle ways, says Metrick. "Microsoft isn't about innovation. It's really about competition and holding onto the desktop. If Windows goes away, I don't see how Microsoft replaces that. To maintain that market share and the Windows annuity, Microsoft has to expand into every PC device."
Viewed in that context, Clemons says, many seemingly contradictory moves by Microsoft make sense. "Ultimately moves that may appear inexplicable on the profit front -- providing free browsers and free email bundled with MSN -- are cross subsidized out of profits from Windows and are ultimately designed to allow Microsoft to charge more for the operating system," he notes.
Size: Pros and Cons
The overarching question is whether Microsoft is too big to play defense, enter new markets and thwart fast-moving companies like Google. Is it, as DiBona suggests, flailing at its competitors? Ballmer has stated that Microsoft is up for the challenge. "Nobody should get in the technology business if they're not prepared to live with, 'Oh, geez, the world is changing.' Of course, the world is changing; embrace it. How do we drive growth, how do we embrace the next trend, how do we be a leading-edge innovator?"
While the jury is out on Microsoft's ability to navigate change, Wharton professors indicate that size has its advantages. "Big isn't necessarily bad in the software development industry, especially when it produces strong economies of scale or significant marketplace advantages due to the ability to ensure superior interoperability or to bundle a near-monopoly, must-have primary product with what would otherwise be a competitive secondary offering," says Clemons.
And given Microsoft's profitability, it's hard to argue that size is a problem. Huesman says Microsoft's heft -- and penchant to attack new markets -- has left it with a diverse revenue stream compared to Google, which relies almost exclusively on advertising. Ultimately, diversification could be Microsoft's biggest weapon in the future as it drives profit and revenue growth in areas such as the Xbox, databases, business process software, development systems and advertising, Huesman notes, adding that "Microsoft's size, built upon diverse revenue streams, provides insurance against the vagaries of specific markets."
However, Microsoft's size can also be a handicap. Take the delay of its latest operating system, Vista, caused in part because it has to remain compatible with previous versions. Microsoft's last operating system release came in 2001 -- indicative of an approach that stands in contrast with the more incremental updates common in most software today.
And then there's "brain drain" and Microsoft's ability to develop a new generation of leaders. Huesman warns that Microsoft's size could hamper the company as it tries to attract talent. "A company Microsoft's size can't offer the freedom and equity that a smaller one like Google can. It will be very interesting to see what happens when the current management turns gray."
But don't count Microsoft out. Huesman notes that Vietnam-like war analogies to describe the challenges facing Microsoft against Google may be only partially correct. In fact, the more likely analogy for Microsoft's battle may be the Civil War, where a smaller, more nimble force in the south (like Google) took on a relatively plodding, yet wealthy force in the north (akin to Microsoft). "The south, led by the most brilliant generals of the day, dominated early on with a series of amazing successes," says Huesman. "Ultimately, however, the slower but stubborn forces in the north prevailed, due largely to their sheer size and wealth."
Source : Wharton
Probably a little of both, according to experts at Wharton. Microsoft certainly isn't hurting financially. The company reported net income of $2.98 billion on revenues of $10.9 billion for the quarter ending March 31. But the big question is whether that performance will be maintained over the next decade. According to Wharton finance professor Andrew Metrick, the reaction to Microsoft's increased spending plans for 2007, which were detailed in the company's fiscal third quarter earnings report April 27, may reveal concerns about what has become an increasingly competitive landscape. "Spending $2 billion doesn't lose you $30 billion in market cap," says Metrick. "Let's face it; $2 billion to Microsoft is like a pimple on an elephant. The reaction was the market inferring that the company is much more scared than investors thought it was about the future."
Indeed, Microsoft is a company in transition, and investors, customers and the entire technology industry would be wise to pay attention. At issue is whether Microsoft has grown too big to be nimble enough to compete with its long list of rivals on many fronts: Google in Internet search and advertising, Sony in video games with the launch of its Playstation 3 on November 17, Linux inside the corporation, and Apple Computer in digital media, to name just a few. Meanwhile, Microsoft's Vista operating system will miss the peak holiday season: While it will be available to volume-licensees in late 2006, other businesses as well as consumers won't see it until sometime in 2007. By extending its reach into new markets, such as mobile communications and digital entertainment, Microsoft may be stretching itself too thin without getting sufficient returns, say analysts.
Not that those concerns have stopped the Redmond, Washington-based software giant from investing heavily in new businesses, such as the money-losing Xbox game machine. For the nine months ending March 31, Microsoft home and entertainment division, which includes Xbox, had an operating loss of $848 million on revenues of $3.1 billion. Microsoft is a third place player in search behind Google and Yahoo, and its MSN unit posted a small loss in the third quarter. And Windows Live, an effort to provide some features of Microsoft's Windows platform as web-based services, is in its formative stages.
Don Huesman, senior director of information technology at Wharton, suggests that Microsoft's investments are designed to buy the company time to find a way to reinvent itself. By investing in new markets, Microsoft can "put itself into a holding pattern until it can remake the company," says Huesman. "The competition isn't just Google. Sooner or later in the future, you won't own software but have access to it ."
At a Silicon Valley event on May 11, Microsoft CEO Steve Ballmer acknowledged that the company's core business -- selling Windows and Office -- could change. "Software really is evolving to be software and service as opposed to software as some kind of standalone entity," he said.
Wharton operations and information management professor Eric Clemons says Microsoft's quest for new businesses may show that the company is a good student of history. IBM, for example, stayed with big mainframe computers too long and "missed both the rise of work-group mini-computers and the shift from hardware-based profitability to software-based profitability in the PC industry," says Clemons. "Maybe that's why Microsoft keeps trying to gain control in the net, gaming and other software areas. They don't want to be a big operating system company if the market moves to something completely different."
Given that Microsoft has no intention of losing its standing as a technology titan, it has an obligation -- not to mention its $34.8 billion in cash as of March 31 -- to invest heavily in new markets, says Wharton management professor Sarah Kaplan. "If wants to make a transformational change, it will need to make a transformational investment," she notes.
Creative Destruction
Transformational investments are one thing, but returns on those expenditures are another. In a May 4 research note, Sanford C. Bernstein analyst Charles DiBona questioned Microsoft's plan to invest what he estimates will become a $2.3 billion outlay. Of that sum, DiBona estimates $700 million will go toward shipping more Xbox consoles before Sony launches its new Playstation, $100 million will go to Chinese PC manufacturers to help market legitimate copies of Windows, and $1.5 billion will be spent on competing with Google on Internet advertising and web services. That last investment "is likely to persist indefinitely."
"Concern has grown that the company appears to be flailing at its opponents," writes DiBona. "Given Microsoft's recent struggles in the Internet space, many investors question the utility and wisdom of spending even more money to pursue what appears to be a losing battle. In the absence of greater insight into the spending, its necessity and its potential returns, the concern is that the spending is a waste."
Kaplan, however, argues that Microsoft should be experimenting with new markets and that even a failure isn't a waste of money. "A big company like Microsoft should be running a lot of (potentially conflicting) experiments. Only some will work out. Creativity must almost by definition involve failed experiments. That's why creative destruction is the essential dynamic of the marketplace."
DiBona's concerns, however, illustrate the hurdles Microsoft has to clear to declare a new venture a success, says Clemons. "Established companies have to think seriously about gambling to an extent that startups don't. If a couple of kids in a garage fail, they are out their time and their VC's money, while if they win, they win big time," Clemons notes. "This encourages risk-seeking behavior. If Microsoft, IBM or Apple fail, it's visible and gets press coverage that little guys don't have to worry about."
The solution: Buy breakthrough technology but don't invent it. "Big companies don't often invent break-through products like PC operating systems, or super premium ice creams or non-carbonated beverages; if they're smart and agile they buy the companies that make ," says Clemons.
Although Microsoft has followed Clemons' playbook and bought numerous companies to enter new markets -- most recently with Massive Inc., a company that provides advertising inside video games -- concerns persist that when it comes to the Internet the software giant is mired in a Vietnam-like quagmire against smaller rivals that it can't beat. Clemons says those concerns are overblown. While it's likely that Microsoft's goals to compete on multiple fronts may be based on a "domino theory" -- which says if the software giant loses in a category, then it could lose dominance on the operating system -- it's not rational as long as Microsoft software continues to run most of the computers globally.
Playing Defense
Because Windows is so dominant, all the investments made by Microsoft have to be viewed through the prism of the operating system -- and the annuity-like profit stream it provides, says Metrick. While many analysts consider Microsoft to be a hypercompetitive company that plays offense, Metrick portrays the company as a largely defensive and reactive one. In fact, Microsoft has no choice but to play defense when it comes to Windows: The software giant enjoys an operating system monopoly with profit margins that can't be replicated.
Microsoft is worth $236 billion as of May 12. If a startup becomes a company with $2 billion in annual revenue, it is considered a success. Microsoft would need more than 100 successful business launches just to keep its current market capitalization if the Windows and Office franchise were eroded. "There's nothing you can do to be offensive when you are talking about hundreds of billions of dollars," says Metrick. "All of these new ventures are small potatoes if you lose Windows and Office."
Viewed in that context, Microsoft's investments are really an attempt to look into the future to see where the threats to its earnings are. "Should Google succeed in slipping its platform between service-oriented applications and Windows, we estimate that a combination of slowing PC replacement, lost market share, pricing pressure and margin compression would eviscerate the Windows client franchise," DiBona writes.
And if that outcome were to happen, Microsoft could lose out in growth markets such as India and China, says Metrick. As a result, a $1.5 billion investment to erode Google's search dominance today is worthwhile if it keeps the Internet giant from denting Microsoft's operating system earnings in the future.
Given the long odds of a new venture becoming a Windows-like success, why would Microsoft bother with new markets? Microsoft's leaders are strategic and recognize that they have to defend the Windows business in subtle ways, says Metrick. "Microsoft isn't about innovation. It's really about competition and holding onto the desktop. If Windows goes away, I don't see how Microsoft replaces that. To maintain that market share and the Windows annuity, Microsoft has to expand into every PC device."
Viewed in that context, Clemons says, many seemingly contradictory moves by Microsoft make sense. "Ultimately moves that may appear inexplicable on the profit front -- providing free browsers and free email bundled with MSN -- are cross subsidized out of profits from Windows and are ultimately designed to allow Microsoft to charge more for the operating system," he notes.
Size: Pros and Cons
The overarching question is whether Microsoft is too big to play defense, enter new markets and thwart fast-moving companies like Google. Is it, as DiBona suggests, flailing at its competitors? Ballmer has stated that Microsoft is up for the challenge. "Nobody should get in the technology business if they're not prepared to live with, 'Oh, geez, the world is changing.' Of course, the world is changing; embrace it. How do we drive growth, how do we embrace the next trend, how do we be a leading-edge innovator?"
While the jury is out on Microsoft's ability to navigate change, Wharton professors indicate that size has its advantages. "Big isn't necessarily bad in the software development industry, especially when it produces strong economies of scale or significant marketplace advantages due to the ability to ensure superior interoperability or to bundle a near-monopoly, must-have primary product with what would otherwise be a competitive secondary offering," says Clemons.
And given Microsoft's profitability, it's hard to argue that size is a problem. Huesman says Microsoft's heft -- and penchant to attack new markets -- has left it with a diverse revenue stream compared to Google, which relies almost exclusively on advertising. Ultimately, diversification could be Microsoft's biggest weapon in the future as it drives profit and revenue growth in areas such as the Xbox, databases, business process software, development systems and advertising, Huesman notes, adding that "Microsoft's size, built upon diverse revenue streams, provides insurance against the vagaries of specific markets."
However, Microsoft's size can also be a handicap. Take the delay of its latest operating system, Vista, caused in part because it has to remain compatible with previous versions. Microsoft's last operating system release came in 2001 -- indicative of an approach that stands in contrast with the more incremental updates common in most software today.
And then there's "brain drain" and Microsoft's ability to develop a new generation of leaders. Huesman warns that Microsoft's size could hamper the company as it tries to attract talent. "A company Microsoft's size can't offer the freedom and equity that a smaller one like Google can. It will be very interesting to see what happens when the current management turns gray."
But don't count Microsoft out. Huesman notes that Vietnam-like war analogies to describe the challenges facing Microsoft against Google may be only partially correct. In fact, the more likely analogy for Microsoft's battle may be the Civil War, where a smaller, more nimble force in the south (like Google) took on a relatively plodding, yet wealthy force in the north (akin to Microsoft). "The south, led by the most brilliant generals of the day, dominated early on with a series of amazing successes," says Huesman. "Ultimately, however, the slower but stubborn forces in the north prevailed, due largely to their sheer size and wealth."
Source : Wharton
gr8 article man worth it .... thanx from pari kashmir
Tackling the Informal Economy
What do Japan, Singapore, South Korea, and Taiwan have in common? Obviously, they are Asian nations that joined the ranks of the wealthy during the second half of the 20th century. But a less well-known shared feature is that none of them have much of an informal economy.
Research on economic development from the MGI and others shows consistently that these two facts are closely related. Sadly, the converse is also true: When large numbers of businesses fail to register, ignore labor laws, flout regulations, and evade taxes, they hinder the expansion of more productive, modern companies.
TINY TRADERS.
That puts a powerful brake on a country's growth rate, locking it into a condition of "emerging but never quite making it," and condemning those living and working in the gray economy to a lifetime of insecurity and poor living standards. For Asian nations with large informal economies -- the Philippines, Indonesia, Thailand, India, and Vietnam among them -- this is bad news indeed.
This view, however, is not accepted by many policymakers and development economists. Two myths prevail. The first is that unlicensed activities by unregistered businesses paying little or no tax do not threaten the growth of the formal, modern economy. Many believe that informal operators are mostly tiny street traders, too small to prosecute for tax evasion, and any that grow bigger will naturally choose to "go straight" as they expand.
The second myth is that for a country experiencing mass rural-urban migration, a growing informal sector is a godsend because it will create jobs much faster than the formal economy can.
INCENTIVE TO HIDE.
Neither of these myths is supported by the evidence. Informal sectors across the world contain a huge range of businesses. Of course, many informal enterprises are small-scale services, especially in retail and construction.
But some are very large operations. In our studies on developing-country economies, MGI has found supermarket chains, software distributors, auto-parts suppliers, consumer-electronics assemblers, even large-scale industrial concerns -- especially in labor-intensive manufacturing -- operating in the gray economy.
Informal businesses, even large ones, choose to stay that way if there is no change in the factors that generally drive them into informality: high corporate taxes and the bureaucratic burden of operating formally. In developed countries, only about half of total tax revenue is paid by registered businesses (with the rest contributed by individuals). In developing countries, registered companies pony up a far greater share of tax revenues -- about 80% -- which creates a big incentive to hide in the informal sector.
TAX AMNESTIES.
On top of the tax costs, bureaucracy can be overwhelming. In Brazil, where the informal economy represents a staggering 40% of GDP and half of all urban employment, it takes 152 days to register a company -- three times the world average. Red tape abounds in parts of Asia, too. It takes 71 days to register a business in India, compared with six in Singapore, and three years to close an insolvent business in Vietnam.
Given the costs of obeying the law, who wouldn't operate informally if they could get away with it? And in countries with large informal economies, they generally can. There tend to be few tax collectors, who rarely prosecute, and the judicial systems are inefficient.
Many such countries are given to granting tax amnesties to coax businesses into the formal fold. But these just give informal businesses an incentive to wait until the next amnesty, rather than to become regular taxpayers. Turkey had 10 tax amnesties in the 40 years before 2003, but its informal economy didn't get any smaller.
SLOW GROWTH.
In any sector where the costs of operating formally are large, having informal competitors is hugely damaging to the prospects of the law-abiding players. Imagine a tax-paying supermarket in Brazil, for instance, where informal retailers operating midsized supermarkets and mini-marts account for 60% of the food retail market.
The supermarket may be many times more productive than its informal rivals, and offer higher quality, but it won't be able to get near them on price because, thanks in part to the informal food processors and wholesalers supplying them, they have an unearned cost advantage of 50%. It will never make sense for the supermarket to invest in expanding, despite its higher productivity.
Now consider this dynamic played out across every sector in the economy where informal and formal players compete. Clearly, informality removes the incentive for businesses to improve their productivity, and that means it holds back GDP growth. And slow growth means fewer new jobs, which drives more people into the informal sector -- further limiting growth in a self-reinforcing cycle.
Policymakers in developing countries may feel that slower growth is a price worth paying for the jobs that their informal sectors create. They certainly employ a lot of people -- the International Labor Organization estimates that more than 70% of the workforce in the developing world works informally.
But formal companies can create jobs just as well if they are not overburdened with taxes and red tape. Indeed, onerous labor taxes everywhere encourage employers to underreport their payrolls. Even in highly developed Sweden, informal employment is growing, because Sweden has the second-highest labor taxes in the world.
INFORMALITY SPREADS.
The irony is that in countries with big informal economies, high tax rates are often imposed on businesses to fund generous welfare budgets, and labor laws pose strict burdens on employers to protect workers. But only the minority of people employed by registered companies or by the state are eligible for the resulting benefits. The mass of people working in the gray economy never get social-security payments, nor the protection of employment law.
Given its depressing effect on growth and living standards, governments should curb informality. It will never disappear of its own accord, so long as the benefits to remaining informal remain high for entrepreneurs and they suffer no serious consequences. Indeed, far from withering away with the onward march of global competition, informal sectors are growing.
The Russian Federation, and countries in sub-Saharan Africa, Latin America, and Central Asia have the highest levels of informality, often more than 50% of GDP, and their informal sectors have seen the greatest increase since 1990. But informality is also growing fast in the Middle East, North Africa, and South Asia, according to the World Bank. Even in China, where the economy is booming, the large informal sector has slowed growth in services.
IT CAN BE DONE.
The recipe for curbing informality is simple: streamline corporate taxes and business regulations, stiffen penalties for breaking the rules, and apply the penalties to all rule-breakers. Tackling the problem sector by sector will remove the risk of sudden increases in unemployment.
Spain's experience in the 1990s shows that it can be done. The government reduced corporate taxes and created a new agency to fight evasion. It also streamlined labor laws and lowered taxes on employment. The result was mass job creation in the formal economy: Unemployment fell by 40% over the next six years. What is more, tax revenues collected from small companies went up by more than 75%, even though corporate tax rates had come down. Governments can use their revenue gain from tackling informality to help prepare workers who lose their jobs for new work in the formal economy.
Diana Farrell is the director of the MGI, The Firm's economics think tank
Source: BuisnessWeek Online.
When consumers are diagnosed with a medical condition such as high cholesterol or obesity, they immediately begin a new regime of brisk walks and a diet of heart-healthy foods. Right? Not necessarily, says Wharton marketing professor Lisa E. Bolton. If those consumers are taking a prescription or over-the-counter drug for their condition, they may actually toss back more chips and donuts. Those taking a supplement, however, may be more likely to eat broccoli and hit the treadmill.
The reason, says Bolton, is that consumers see the drug as a "get-out-of-jail-free card," which eliminates or reduces the risks of such bad habits as eating high-fat foods, excessive drinking or a sedentary life-style. Supplements, such as vitamins, minerals and herbs, on the other hand, surprisingly are much less likely to have this sort of "boomerang effect," according to a recent research paper titled, Turn on Versus Tune out: Consumer Reaction to Supplement Versus Drug Marketing, co-authored by Bolton, Wharton marketing professor Americus Reed II, and Kevin G. Volpp and Katrina Armstrong, professors at the University of Pennsylvania School of Medicine.
With supplements, consumers are more likely to believe that "the remedy alone is insufficient to take care of the risk unless accompanied by other health-protective behaviors," the report states. In other words, people realize that a pill, if it's labeled a supplement, isn't going to cut it by itself, and they will have to alter their lifestyles too. Drugs, however, may "boomerang," or encourage consumers to take health risks. One example is the anti-HIV drug tenofovir, which could lead people to engage in risky sexual behavior. The Food and Drug Administration has also expressed reservations recently over a fat-fighting drug that could be abused by binge eaters, body builders, anorexics and others.
While drugs have a lot of science to back them up, a big issue with supplements is their general lack of scientific research. "People choose almost more as a matter of faith than science," says Bolton. "They figure that it can't hurt." Despite the lack of evidence on the effectiveness of supplements, Bolton argues that this large and growing industry deserves attention. Most recent studies, all of which are close to 10 years old, place the supplement industry at more than $10 billion a year in sales -- and that's a conservative estimate. Multiple vitamins and other specialty vitamins, like ginkgo biloba, echinacea, St. John's Wort and glucosamine, are common household names. Weight-loss supplements like "thermogenic" fat burners (e.g., Trim-Spa & Hydroxycut) and body-building supplements like creatine, nitric oxide and amino acids are also popular for enhancing athletic performance.
While supplements may or may not be effective remedies, one thing is clear: They don't have the same behavioral effects on consumers that drugs have. "Our research is important because it looks at those issues -- both for drugs and supplements," says Bolton. "And the fact that we find boomerang effects for drugs but not supplements is important because of the implications for consumer welfare and public policy."
To isolate their research, Bolton and her team focused only on consumer reaction to the drug or supplement label, what they call the "mere labeling effect." They asked: "Can merely labeling a product as a drug versus a supplement produce a change in consumer attitude and behavior?" Notes Bolton: "We didn't look at packaging or other information like disclaimers. The label had to overcome all the other information that was equivalent. So, in some ways, it's a powerful test."
Incorrect Impressions
To get started, Bolton and her team explored what kind of associations come to mind when consumers think about the term "drugs" versus "supplements". They also probed consumers' level of knowledge of drugs and supplements. For instance, in the first experiment, they asked 81 participants (in this case, staff and students from two local universities and a hospital) to explain in their own words what drugs and supplements are. "We found that people don't really understand the differences between them," says Bolton. "In fact, we had to go to people with training in the medical field" -- such as doctors, nurses and other medical professionals -- "to find more accurate perceptions."
As a whole, only 18% of participants in the first study mentioned that drugs and supplements are regulated differently -- "and some did so incorrectly, mistakenly believing that supplements also undergo FDA approval," notes the report. Many participants also thought that supplements were "natural" and drugs were "non-natural chemicals."
Study participants also read a short scenario in which one man takes a supplement to help manage his weight and another takes an over-the-counter drug. Then they answered questions about the men taking the remedies. In general, participants associated drug remedies with poor health, and they saw "complementary behaviors" like exercise and a good diet as more important for a person taking a supplement.
In a second experiment, the researchers compared both prescription and over-the-counter drugs to supplements, and found similar results. Participants (who, in this case, also included a sample of fitness club members) viewed consumers taking either type of drug as less healthy and less likely to exercise or stick to a low-fat diet, compared to someone taking a supplement.
One explanation for this could be that a "supplement label by its very name suggests that the remedy works in conjunction with other health-protective behaviors," the report states. In contrast, a drug label automatically makes people think of poor health and steers them away from healthy habits.
Better Drug Leads to Worse Behavior?
The researchers then looked at a particular problem area -- high-fat eating -- and fat-fighting remedies. The 66 participants of this study (again, from two universities and a hospital) completed a "self-perception questionnaire" about their own body image. They then read one of two identical advertisements about a fat-fighting remedy -- one for a drug and the other for a supplement -- and rated the ad.
Finally, participants completed a restaurant dining study in which they had to imagine themselves taking one of the two remedies and going out for a meal. They were asked to select menu items and to estimate their fat content. Interestingly, participants in the drug condition rated food as less fatty than those in the supplement condition, the report states. "This result is suggestive of a boomerang effect," the report states. "That is, the drug alone is sufficient to neutralize the fat in food; the supplement is not." What's more, participants with an especially poor body image (i.e., "in the problem domain" or at most risk) who were asked to imagine taking the drug tended to select more high-fat items than those who were asked to imagine taking the supplement.
This prompted Bolton and her team to examine what would happen if a drug or a supplement varied in effectiveness. For this study, the researchers looked at cholesterol remedies, using a sample of 185 patients in a Veterans' Affairs Medical Center, all of whom were at risk for coronary heart disease. The participants read an advertisement for a remedy that was described as either a drug or a supplement. In one version of the ad, the drug/supplement was highly effective and in another, less so. Participants then rated the remedy and the ad. Finally, they completed a survey of their intentions to engage in certain behaviors, such as eating high-cholesterol foods.
The results: The more effective the drug, the more risk a consumer was willing to take with his diet. Supplements, on the other hand, did not prompt consumers to change their eating habits, no matter how effective they were.
One interesting exception, however, may be study participants currently taking cholesterol medicine. These participants showed less signs of a boomerang effect. "We're surmising that the person taking a drug has already had some counseling that is sufficient to undo some of these effects," says Bolton. "But how many people aren't getting this kind of education from medical professionals? And it is way late in the game to get the education after you have been put on the medicine. The advertising could have led them to eat more high-fat foods."
A Self-Image Hit
A final area that Bolton and her team explored involved the concept of "healthy identity" and its relationship to one's quality of life. "A healthy identity should lead to a high quality life," Bolton notes. "But having to exercise in addition to taking a drug seems to undermine that relationship." For this study, participants (also from a VA Medical Center) read about someone diagnosed with high blood pressure and taking a medication for it. When the person was taking the drug and not exercising, "the relationship between health identity and life quality was positive," the report states. However, when the person was taking the drug and going on daily walks, participants in the study viewed the person as having a lower quality of life.
Taking a drug and being forced to engage in exercise seems to go against consumers' perceptions of drugs, or their "drug schema." "It's a double boomerang," says Bolton. "First, people are not engaging in health-protective behaviors and second, even if they do, that impacts their quality of life." The drug is no longer a magical easy-fix elixir.
What are the implications of this research? For one, it shows that consumers may "trade away some of the safety gain" of taking a drug by engaging in risky behavior. "We're demonstrating another reason why people aren't engaging in a healthy lifestyle," says Bolton.
Just as important, the research adds to what the report calls "the growing debate over the regulation of drug and supplement markets and the role of direct-to-consumer advertising of drugs." It also points to the need for better educating consumers about drugs and supplements. As Bolton sums up, "You don't want to overpromise that a drug -- or a supplement, for that matter -- is a get-out-of-jail-free card."
Source : Wharton
The reason, says Bolton, is that consumers see the drug as a "get-out-of-jail-free card," which eliminates or reduces the risks of such bad habits as eating high-fat foods, excessive drinking or a sedentary life-style. Supplements, such as vitamins, minerals and herbs, on the other hand, surprisingly are much less likely to have this sort of "boomerang effect," according to a recent research paper titled, Turn on Versus Tune out: Consumer Reaction to Supplement Versus Drug Marketing, co-authored by Bolton, Wharton marketing professor Americus Reed II, and Kevin G. Volpp and Katrina Armstrong, professors at the University of Pennsylvania School of Medicine.
With supplements, consumers are more likely to believe that "the remedy alone is insufficient to take care of the risk unless accompanied by other health-protective behaviors," the report states. In other words, people realize that a pill, if it's labeled a supplement, isn't going to cut it by itself, and they will have to alter their lifestyles too. Drugs, however, may "boomerang," or encourage consumers to take health risks. One example is the anti-HIV drug tenofovir, which could lead people to engage in risky sexual behavior. The Food and Drug Administration has also expressed reservations recently over a fat-fighting drug that could be abused by binge eaters, body builders, anorexics and others.
While drugs have a lot of science to back them up, a big issue with supplements is their general lack of scientific research. "People choose almost more as a matter of faith than science," says Bolton. "They figure that it can't hurt." Despite the lack of evidence on the effectiveness of supplements, Bolton argues that this large and growing industry deserves attention. Most recent studies, all of which are close to 10 years old, place the supplement industry at more than $10 billion a year in sales -- and that's a conservative estimate. Multiple vitamins and other specialty vitamins, like ginkgo biloba, echinacea, St. John's Wort and glucosamine, are common household names. Weight-loss supplements like "thermogenic" fat burners (e.g., Trim-Spa & Hydroxycut) and body-building supplements like creatine, nitric oxide and amino acids are also popular for enhancing athletic performance.
While supplements may or may not be effective remedies, one thing is clear: They don't have the same behavioral effects on consumers that drugs have. "Our research is important because it looks at those issues -- both for drugs and supplements," says Bolton. "And the fact that we find boomerang effects for drugs but not supplements is important because of the implications for consumer welfare and public policy."
To isolate their research, Bolton and her team focused only on consumer reaction to the drug or supplement label, what they call the "mere labeling effect." They asked: "Can merely labeling a product as a drug versus a supplement produce a change in consumer attitude and behavior?" Notes Bolton: "We didn't look at packaging or other information like disclaimers. The label had to overcome all the other information that was equivalent. So, in some ways, it's a powerful test."
Incorrect Impressions
To get started, Bolton and her team explored what kind of associations come to mind when consumers think about the term "drugs" versus "supplements". They also probed consumers' level of knowledge of drugs and supplements. For instance, in the first experiment, they asked 81 participants (in this case, staff and students from two local universities and a hospital) to explain in their own words what drugs and supplements are. "We found that people don't really understand the differences between them," says Bolton. "In fact, we had to go to people with training in the medical field" -- such as doctors, nurses and other medical professionals -- "to find more accurate perceptions."
As a whole, only 18% of participants in the first study mentioned that drugs and supplements are regulated differently -- "and some did so incorrectly, mistakenly believing that supplements also undergo FDA approval," notes the report. Many participants also thought that supplements were "natural" and drugs were "non-natural chemicals."
Study participants also read a short scenario in which one man takes a supplement to help manage his weight and another takes an over-the-counter drug. Then they answered questions about the men taking the remedies. In general, participants associated drug remedies with poor health, and they saw "complementary behaviors" like exercise and a good diet as more important for a person taking a supplement.
In a second experiment, the researchers compared both prescription and over-the-counter drugs to supplements, and found similar results. Participants (who, in this case, also included a sample of fitness club members) viewed consumers taking either type of drug as less healthy and less likely to exercise or stick to a low-fat diet, compared to someone taking a supplement.
One explanation for this could be that a "supplement label by its very name suggests that the remedy works in conjunction with other health-protective behaviors," the report states. In contrast, a drug label automatically makes people think of poor health and steers them away from healthy habits.
Better Drug Leads to Worse Behavior?
The researchers then looked at a particular problem area -- high-fat eating -- and fat-fighting remedies. The 66 participants of this study (again, from two universities and a hospital) completed a "self-perception questionnaire" about their own body image. They then read one of two identical advertisements about a fat-fighting remedy -- one for a drug and the other for a supplement -- and rated the ad.
Finally, participants completed a restaurant dining study in which they had to imagine themselves taking one of the two remedies and going out for a meal. They were asked to select menu items and to estimate their fat content. Interestingly, participants in the drug condition rated food as less fatty than those in the supplement condition, the report states. "This result is suggestive of a boomerang effect," the report states. "That is, the drug alone is sufficient to neutralize the fat in food; the supplement is not." What's more, participants with an especially poor body image (i.e., "in the problem domain" or at most risk) who were asked to imagine taking the drug tended to select more high-fat items than those who were asked to imagine taking the supplement.
This prompted Bolton and her team to examine what would happen if a drug or a supplement varied in effectiveness. For this study, the researchers looked at cholesterol remedies, using a sample of 185 patients in a Veterans' Affairs Medical Center, all of whom were at risk for coronary heart disease. The participants read an advertisement for a remedy that was described as either a drug or a supplement. In one version of the ad, the drug/supplement was highly effective and in another, less so. Participants then rated the remedy and the ad. Finally, they completed a survey of their intentions to engage in certain behaviors, such as eating high-cholesterol foods.
The results: The more effective the drug, the more risk a consumer was willing to take with his diet. Supplements, on the other hand, did not prompt consumers to change their eating habits, no matter how effective they were.
One interesting exception, however, may be study participants currently taking cholesterol medicine. These participants showed less signs of a boomerang effect. "We're surmising that the person taking a drug has already had some counseling that is sufficient to undo some of these effects," says Bolton. "But how many people aren't getting this kind of education from medical professionals? And it is way late in the game to get the education after you have been put on the medicine. The advertising could have led them to eat more high-fat foods."
A Self-Image Hit
A final area that Bolton and her team explored involved the concept of "healthy identity" and its relationship to one's quality of life. "A healthy identity should lead to a high quality life," Bolton notes. "But having to exercise in addition to taking a drug seems to undermine that relationship." For this study, participants (also from a VA Medical Center) read about someone diagnosed with high blood pressure and taking a medication for it. When the person was taking the drug and not exercising, "the relationship between health identity and life quality was positive," the report states. However, when the person was taking the drug and going on daily walks, participants in the study viewed the person as having a lower quality of life.
Taking a drug and being forced to engage in exercise seems to go against consumers' perceptions of drugs, or their "drug schema." "It's a double boomerang," says Bolton. "First, people are not engaging in health-protective behaviors and second, even if they do, that impacts their quality of life." The drug is no longer a magical easy-fix elixir.
What are the implications of this research? For one, it shows that consumers may "trade away some of the safety gain" of taking a drug by engaging in risky behavior. "We're demonstrating another reason why people aren't engaging in a healthy lifestyle," says Bolton.
Just as important, the research adds to what the report calls "the growing debate over the regulation of drug and supplement markets and the role of direct-to-consumer advertising of drugs." It also points to the need for better educating consumers about drugs and supplements. As Bolton sums up, "You don't want to overpromise that a drug -- or a supplement, for that matter -- is a get-out-of-jail-free card."
Source : Wharton
India and China are obvious and formidable twins.
Cities like Shanghai point to a prosperous futureWith a combined population of almost two-and-a-half billion people, they are the emerging giants of the new century.
Both are seeing dramatic levels of economic growth.
Both are increasingly dynamic members of the international community, increasingly conscious of their growing influence and feted by Western governments.
The central governments in both countries have found a new pragmatism in international affairs, eager to forge strategic relationships based on fuelling their growing energy needs at home.
China has built an impressive new network of political relationships with countries rich in resources - whether in Latin America and Africa or closer to home.
India, chasing many of the same resources, is racing to keep up.
Finding a new place on the world stage, marrying pragmatism and self-interest with the urging of countries like the United States to be responsible and altruistic global citizens, is difficult enough.
But the greatest challenge for both countries is managing the threat within - the threat of social instability which is increasingly preoccupying them both.
Wealth gap
Again, there are obvious parallels.
China and India are both vast and diverse territories which pull together disparate cultures, ethnic groups and identities.
Globalisation has brought a new openness which also means more outside influence.
Poverty is often only a few streets away from great wealthBoth governments are eager to maintain their territorial integrity - part of which means keeping a sense of nationhood and common identity at a time of dilution.
Both are seeing social discontent.
Mass migration to the thriving cities, as migrants seek out new opportunities, is creating acute urban social problems - from a lack of adequate housing to inadequate health care and education.
The clear gaps between the haves and have nots increase concern about urban crime.
The growth of the cities, intense economic activity and rising car ownership in both countries is causing massive problems of air and water pollution which both governments are now struggling to address.
By contrast, rural populations are increasingly frustrated, aware of the boom elsewhere but feeling hopelessly excluded from the new wealth.
Without education, many born into villages have little opportunity of finding a useful place for themselves in the new economy.
In both China and India, some less accessible rural areas are increasingly denuded, maintained by the old and very young as the able-bodied workers head for the cities.
Both governments are engaged in massive social programmes to stop rural discontent and help the excluded regions to join the economic party.
Impossible task
But given the size of their populations and the political need to keep overall growth levels high, alleviating discontent in the short term seems an almost impossible task.
One of the greatest questions is how these two giants will manage the relationship with each other 
In India, programmes like the newly launched National Rural Employment Guarantee Scheme actually pay people to stay in rural areas and support them through periods of unemployment there.
Some applaud it as a bold attempt at rural regeneration.
Others say it doesn't lift rural communities out of poverty, just tries to stem an inevitable tide of rural-urban migration.
In China, migration, although much freer than before, is still regulated and constrained.
Rural protests are growing with alarming speed, many focused on the requisition of land for non-agricultural use and local corruption.
But just as both vast countries share many of the same problems, their different political systems make them very different animals.
Changing attitudes
India's democracy brings constraints but may ultimately deliver greater stability.
It's hard for the central government in Delhi to engage in long-term planning.
Democracy involves complicated deals with coalition partners and regular and unpredictable changes in leadership.
A strong civil society also means that any radical solutions to national problems, such as the need for energy or tackling pollution, often face a storm of opposition from one vocal quarter or another.
Will the strategic partnership turn into genuine friendship?There's also a pressing need to maintain public confidence in the democratic process in the country's most poor and poorly governed states to counter civil unrest.
But India does benefit from a thriving non-government sector, a strong and outspoken media which helps to keep politicians accountable and highlight problems and, at the centre of it all, a relatively strong and independent legal system.
In China, the economic change has so far failed to bring these sorts of freedoms.
Some analysts say discontent is generally focussed at a local level.
Attitudes towards Beijing and the Chinese Communist Party as a national government are still largely approving.
But as Chinese society changes, its middle-class grows and outside influences increase, the CCP may not be able to take its monopoly on political power for granted.
Genuine friendship?
One of the greatest questions is how these two giants will manage the relationship with each other.
Recently they forged a new strategic partnership - moving on from old disputes about ideology and boundaries with promises to work together.
They're certainly eager to learn from each other.
India wants to imitate China's low-cost manufacturing success.
China wants to follow India in developing global IT, hi-tech and service industries.
But how far is this a genuine friendship - and how far are the lingering differences, rivalries and suspicions just being submerged? The coming decades are sure to be interesting times.
source : bbc
hi friends this is pari from kashmir i always use this thread to my best
time to give something back ......
it is the view of our country from outsiders .....
i guess the unbiased one
successful man keeps his critics in the backyard....anonymous
i
Nice post Pari. From where do you get such a wealth of information.
abhishek
@Govi n Co.
2 main things...
1. Apart frm this, is there any other thread thats dedicated to Finance, Business n Economy?...Ofcourse I'v done my searching but not a 100% sure if I'v covered everythn..."Mission Possible: A guide to Eco..." was the only releavnt thread that I found...
2. I need to know abt a few Books on this very topic...Again there r 2 things here...
1 is that u get books frm the Mkt that talk abt the technical aspects of Fin, books such as Prasanna Chandra's book on Fin Management. Now this is the only book that I know of in this category...Cld u guys temme if there r any other good books available out there?
2ndly...U then have books that deal more with the psychological aspect of Investing et al...Books such as "The Intelligent Investor" & "Freakonomics"...Again these r the only 2 good Bokks that I m aware of...Do temme if there r some other books available discussing such things?
Rgrds,
Brij.
Hi all, i know this is not related to the topic bt still i feel this is the most feasible place to ask this...
I hv some general questions related to business world, which i tried to luk in various places bt didnt got a lucid answer..:neutral:
can ne1 tell me where to exactly get to know abt the various things like:
1.Equity
2.Shares
3.Mutual Funds
4.Investment banking
5.Underwriting
n lots n lots of other biz things....
like how the share market is controlled n etc..
please tell me the name of ne book or the website where i cn get to know abt all these things...
thanks a lot in advance....:)