Eglobuzz july sept '15
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Transcript of Eglobuzz july sept '15
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FOREWORD
Dear Readers,
We are pleased to bring to you the July to September 2015 issue of e-GlobuzZ,
the maiden issue for the academic year 2015-16.
In addition to the articles on various contemporary topics in International
Business, we have covered in this issue the highlights of the 5Th International
Business Conference, Pangea 2015, hosted by International Business Society (IBS@SIMSR) on 26
September, 2015 at SIMSR.
One of the sad events during the July to September 2015 quarter was the passing away of our
beloved former President and scientist of great eminence Prof. Dr. A.P.J. Abdul Kalam on 27 July,
2015. As a token of our profound respect for late Dr. Abdul Kalam, we have included an obituary
on Dr. Abdul Kalam in this issue.
It is heartening for us at IBS@SIMSR to notice an interesting trend that more and more students
of other than PGDM International Business program are not only writing articles in the e-GlobuzZ
but also are active members of IBS@SIMSR. We certainly welcome this trend and will endeavor
that the IBS@SIMSR Events become more meaningful and engaging to larger audiences of SIMSR
students and Faculty.
We invite our esteemed Faculty, SIMSR students and our alumni to contribute articles on any
topic in International Business for our 6th anniversary issue of e-GlobuzZ i.e. October to December
2015.
Happy Reading!
Prof. C. P. Joshi
Faculty Mentor, IBS@SIMSR
Dean MMM, MFM, MIM & MHRDM,
Area Chairperson (Strategy, International Business & General Management) &
Program coordinator Core PGDM and PGDM– (International Business)
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CONTENTS
Faculty Mentor: Prof. C.P. Joshi
Editors-in-Chief: Shweta Singh, Saachi Batta
Editors: Manasvi Adhyanthaya, Mansi Mahajani, Samarth R. Amarnani, Amol Chanshetty, Nirupama Rai
Designer: Geetanjali, Arpit Apoorva
Did You Know? : Samarth R. Amarnani
Crossword : Atul Indoria
All the views expressed in this magazine reflect the personal opinions and views of the authors and do not reflect IBS@SIMSR views.
Obituary to Sir Avul Pakir Jainulabdeen Abdul Kalam
4
When Greece Fell Again—Story of a crumbling
nation
6
Iran Deal and Global Business 8
Extreme Weather Events: Threat to Economy 10
Is Gold Losing it’s Shine? 13
Impact of Rupee Depreciation on India’s Export
and Import
15
The Chinese are coming… 17
The recent instabilities in the Middle East 19
PANGEA 2015 22
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Obituary to Sir Avul Pakir Jainulabdeen Abdul Kalam (15th October 1931 - 27 July 2015)
If there is one man who has championed the
aforementioned words and their meaning, it
is none other than Dr. APJ Abdul Kalam, the
Missile Man. He was an ocean of experience,
ideas and motivation and to capture his
personality and contributions in a few
hundred words is a near impossible task. He
was a man
of vision,
m i s s i o n
and a firm
believer in
hard work.
H i s
philosophy of learning from one’s failure
became the fodder for survival of millions of
brains who were to become the future
leaders of the nation. His contributions to the
society in the realm of science, space
research, and teaching are perhaps,
perpetual. There hasn’t been a person in the
recent past who, by virtue of his relentless
enthusiasm, contributed to the nation and
the world so much.
Kalam’s role in spawning India as the nuclear
power is what makes him special. Despite
his calm and composed demeanour he gave
us the power of
being confident
and safe. He is
perhaps a jewel
in the crown
that brings him
close to the likes of Gandhi and other Indian
leaders who had changed the nation and
world, too.
Born in a family of limited means, Kalam sold
newspapers to supplement his family
income.
Fear to fail augurs fear to try; fear to try becomes a hurdle for successes’
His belief in every religion and his way of living life be-
reft of materialistic pursuit makes him an ideal leader.
He was an ardent reader of scriptures ranging from Bha-
gavad Gita to Holy Quran and always voiced the need for
national integration through his own example.
Aviral Singh, PGDM A | 2015-17
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However, despite all the odds, he showed
early signs of inclination towards
mathematical subjects. His teachers have
described him as hard working and focussed if
not an outperformer. His predilection for
physics led him to earn a bachelor’s degree
from Saint Joseph College in 1954. Later he
started studying aerospace engineering at
Madras Institute of Technology. He aspired to
be a pilot in the Indian Air force but narrowly
missed achieving his dream. However he
didn’t stop. After his graduation from MIT he
joined the aerospace wing of DRDO (Defence
Research and Development Organization) and
designed a small helicopter for the Indian
Army. He also worked in the INCOSPAR
committee under the renowned space
scientist Vikram Sarabhai. In 1969 Kalam was
transferred to ISRO where he served as the
director of the first Indian Satellite launch
Vehicle (SLV- III). In 1963-64
Kalam visited NASA and in
the 1970s and 1990s tried to
develop Polar Satellite
Launch Vehicles (PSLV) and
SLV-III projects, both of
them being successful.
Kalam’s journey in the nuclear domain began
when he witnessed the country’s first nuclear
test Smiling Buddha as the representative of
TBRL. Kalam played a pivotal role in
developing major missiles including Agni and
Prithvi. He also served as the Chief Scientific
Adviser to Prime Minister and Chief Secretary
of DRDO from July 1992 to December 1999.
The Pokhran-II tests were conducted during
this period when he served as the chief
project coordinator for the same. He served
as the president of India from July 2002 to
July 2007 and during this period he set
himself as the touchstone for Presidency.
In June 2002, the NDA government headed
by Vajpayee came up with the inspired but
unconventional choice of a modest and an
unassuming technocrat for the post of the
11th President of India, the entire nation, in
rare show of unanimity, rejoiced at the
technocrat elevation. After retiring from
Presidency Kalam became a visiting Professor
at IIM Shillong, IIM Ahmedabad and IIM
Indore. During this period he spread the
message of importance of teaching and how a
teacher should love teaching in order to
deliver quality education. He always
reinforced the role of inquisitive learning in
building creative minds.
The plethora of achievements that Kalam has
to his name would have made any other
individual haughty. But Kalam carried himself
with utmost pride and humbleness. His belief
in every religion and his way of living life
bereft of materialistic
pursuit makes him an ideal
leader. He was an ardent
reader of scriptures ranging
from Bhagavad Gita to Holy
Quran and always voiced
the need for national
integration through his own example.
Mr. Kalam once said “If you are blessed with
intelligence, and empowered with education –
it is your responsibility to change the world”.
All we need to do is to wake up and realize and
follow his footsteps which for sure will take us
and the nation to a status that he had imagined
in his mind. Perhaps, this is the best thing that
we can do to pay him for his service to the
nation, follow his footsteps and reach the
destination that he had set out to reach for. Let
us give our eternally optimistic, grand old
friend, inspiration, mentor and beloved
People’s President of the nation a reason to
smile, wherever he is now. Salute you Kalam sir!
“If you are blessed with intelli-
gence, and empowered with
education – it is your responsi-
bility to change the world”
Page 6
When Greece Fell Again—Story of a crumbling nation
Greece is known for its fights, heroic battles,
indomitable warriors and the spirit of
undying strength. In history, the nation was
believed to be strong and undefeatable but
21st century saw the country crumble, not
against any enemy but from its own
economy.
After the Wall Street imploded in 2008,
Greece became the epicenter of Europe’s
debt crisis, igniting a reaction that could not
be contained. While the rest of the world
was trying to overcome the crisis, Greece
a n n o u n c e d
that it had
b e e n
understating
its deficit
figures for
years. This
raised alarms
about the soundness and security of Greek
finances, and suddenly, Greece was shut out
from borrowing in the financial markets.
Very soon, the country was veering towards
bankruptcy, which threatened to set off a
global financial crisis.
This saw the emergence of Troika, a joint
body of the International Monetary Fund,
the European Central Bank and the
European Commission. Troika then issued
the first of two international bailouts for
Greece, to contain the explosion which could
be caused. The bailouts eventually totaled
more than 240 billion euros, or about $264
billion at today’s exchange rates. Despite the
fact that bailout conditions were harsh, they
w e r e
accepted as
the country
could not
continue to
operate any
f u r t h e r .
L e n d e r s
imposed austerity terms, deep budget cuts
and steep tax increases along with
streamlining the government
The bailout money was supposed to buy the nation time
to stabilize its finances and subdue market fears that
the European union itself could break up but instead of
making its way into the economy, most of the bailout
money was directly spent on paying off Greece’s inter-
national loans.
Samarth R. Amarnani, PGDM IB | 2015-17
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and ending tax evasion practices. Attempts
were being made to make Greece an easier
place to do business.
Billions for Bailout and Still in Crisis?Now
the question arises, if Greece had got billions
of dollars for recovery, why did the crisis
continue? While the plan helped, it still
could not ensure elimination of the problem
altogether. In the last 5 years, the economy
has shrunk to 25%, with unemployment
reaching about a quarter of the population.
The bailout money was supposed to buy the
nation time to stabilize its finances and
subdue market fears that the European
union itself could break up but instead of
making its way into the economy, most of
the bailout money was directly spent on
paying off Greece’s international loans.
Many economists are of the view that the
crisis is the result of the austerity measures
as “it created humanitarian crisis”. The huge
debt load on the government cannot be paid
unless the recovery starts to happen. This
year, the leftist Syriza party rode to power in
the country, promising to renegotiate the
bailout.
Would Grexit Affect the World?Economic
disorder in Greece would affect the
functioning of the Eurozone and in order to
prevent the entire union from being
affected, Grexit is a possibility. In case
Greece exits the Eurozone, it can create
global financial shocks bigger than the
collapse of Lehman Brothers did. Experts are
of the opinion that the turmoil in Greece
could spill over to the rest of the world. The
real decision making power in the European
Union rests with 28 national governments.
The decisions on delicate political matters
like money and immigrants are taken in
consensus by all 28 countries but each
country is obliged to its voters and tax
payers.
On the contrary, some economists believe
that “Grexit”, Greece leaving the currency
union, wouldn’t be such a catastrophe. The
reason being Europe has already put up
safeguards to minimize the effects of the
event. Also, Greece, which is just a small part
of the Eurozone economy, can regain
financial autonomy by exiting the union.
Another group believes that the Eurozone
would actually be better off without a
country which is unable to handle its
economy and seems to constantly need its
neighbors’ support.
Since the initial stages of the debt crisis in
2010, most international banks and foreign
investors have sold all or most of their Greek
bonds and other holdings. This ensures that
they are no longer vulnerable to what
happens in Greece. Trouble could follow for
the banks and investors which invested in
the economy, hoping and speculating for it
to rise in near future.
Talking about the Indian economy, the Greek
tragedy will not be such a big event since
most of our debt and trade is with European
governments. Also, considering indirect
repercussions, the situation is almost under
control thanks to the efforts of the European
Union. All that’s left to see is whether
Greece will be able to recover from the mess
it has created for itself or will this be a war
story in which Greece falls!
Page 8
Iran Deal and Global Business
After 12 years of ups and downs Iran and
the “P5+1” countries have at last succeeded
in making a nuclear agreement. The
agreement is a huge success from the point
of view of the United Nations and European
Union as Iran will have to utilize its nuclear
capabilities for non-military purpose. For
example, Iran cannot increase uranium
capacity to more than 3.67%. If done, it will
be prohibited from building a nuclear bomb.
In exchange, Iran has been relieved from all
the international sanctions that were
applied by the US and EU earlier.
Roots of this nuclear deal go back to 2003
when Bush Government was in power in the
United States. In 2003 when USA was
looking for Saddam Hussain, Iran was one of
the influential
factors in Iraq.
Iranian leaders
feared that they
were encircled
b u t B u s h
handled the
matter skillfully.
This deal shows that we can reach on an
agreement on many shared international
problems in a peaceful way in spite of the
disputes.
This nuclear deal is favorable to Iran in
many ways. Iran is able to normalize its
relations with the West. The supporters of
the agreement within Iran can reach to
Saudi Arabia with a cooperative intention. In
turn Saudi Arabia can join Iran in
establishing a peaceful and stable
Government in Syria. China and Russia want
peace and stability in the Middle-East region
as they worry about the energy supplies. I
believe that the nuclear deal is a start in this
direction. This deal will make a global
economic impact as improved relations
within Iran and ‘P5+1’ countries have a
potential to improve the global economic
environment. Iran’s GDP was affected due
to restrictions on sending hard currencies to
Iran but this deal will improve Iran’s GDP.
Lifting oil and banking restrictions will
enhance the exports of Iran. People from
European countries can invest in Iran in
exchange of oil. Car manufacturers like
Volkswagen and Peugeot who were leaders
in Iran before the sanctions were applied
are likely to benefit as they can start their
business there
again.
The relationships
between India
and the Middle
Eastern countries
like Israel and Iran
have always been
friendly. India has supported this deal as
India is also concerned about its energy
supplies. Narendra Modi Government is
following a proactive foreign policy in order
to strengthen relationships with many
countries. Middle Eastern countries are
important from the point of view of this
policy. The nuclear deal has opened a new
door for India in regional trade and
commerce area. India has taken steps to
invest in Iran’s southern port of Chabahar.
Car manufacturers like Volkswagen
and Peugeot who were leaders in Iran
before the sanctions were applied are
likely to benefit as they can start
their business there again.
Jaydeep Mali, PGDM FS | 2015-17
Page 9
Expanding trade through this link can help India
penetrate into central Asian and Afghan
markets without any intervention from
Pakistan. India can hope for advancement in
trade and energy interests due to this nuclear
deal.
Though this deal has its potential benefits, it
has created regional imbalance around Iran.
Neighboring countries are under the impression
that Iran will get stronger here onwards and
challenge the influence of Gulf countries.
Palestine and Israel will face the consequences
of the strong bond between US and Iran. All the
countries in the Middle East like Turkey, and
Egypt are uncertain because of this deal.
Relations between US and Turkey have been
bitter lately; hence the Turkish government is
quite skeptical about the consequences of this
deal. The deal could benefit Turkey but again, it
is up to them how they cope with upcoming
situations.
Another major country that is likely to be
affected is Israel. Israel is one of the leaders of
nuclear capabilities among Middle East
countries. All Middle East countries are well
aware of the nuclear strength of Israel. This
nuclear deal is making Iran a stronger nuclear
power in the region increasing the tensions in
Israel. The deal may lead to an increase in
tension between Shia and Sunni and Egypt is
likely to be affected because of this.
There are pros and cons to the nuclear deal.
The world has to take this deal in a positive way
and identify the potential benefits that can
promote stability, peace, trade and friendship.
The U.S. apparel market is the largest in the world,
comprising about 28 percent of the global total
and has a market value of about 331 billion U.S.
dollar.
India will add a million new workers every month
for the next two decades. Equal to the entire popu-
lation of Sweden joining the labor force every
year for 20 years
Page 10
Extreme Weather Events: Threat to Economy
‘Climate change has the potential to (and
most likely will) send us into one of the
biggest global recession ever’. I know that for
a lot of us it is hard to take any such
statement at its face value but most of us
cannot even comprehend just what could be
the connection between economy and
environment as environmentalism, in some
circles, is still thought to be only about
protecting trees and endangered species.
Through this article I would like to illustrate
the relationship between economy and
environment.
T h e m a j o r r o a d b l o c k f o r t h e
environmentalists in context to economy is
the fact that though in the long run economy
and environment are not in contrast to one
another but from a short term perspective
actions taken to protect the environment are
often detrimental to the health of economy.
Few instances where we can clearly observe
the negative effect that environmental
regulations have on the economy are:
Stringent pollution regulation hurts the
profitability of companies and decreases the
speed at which they are able to expand their
operations
Renewable energy at the moment is more
costly to produce and will need continuous
support from government to become as
viable as its more polluting alternatives
The strongest argument given in opposition
to this negatively reflected relationship is that
environment related issues are not separate
from any other issue we face but actually a
component of them all. A healthy
environment is a prerequisite for a healthy
economy as economy relies on nature’s
ability to provide resources and necessities of
life, if pollution and climate changes triggered
by mankind are reducing nature’s ability to
provide, the result is catastrophic for the
economy.
Extreme weather events are a major
consequence of climate change, and are
becoming more powerful, erratic and
unfortunately, frequent. Severe weather
events have dominated headlines recently,
causing immense devastation. Every
continent has been affected, from one of the
world’s strongest storms hitting the
Philippines and the widest tornados ever
seen in the United States, to extreme
droughts gripping central Africa, Brazil and
Australia and a series of massive floods in
Pakistan (refer fig1 for severe weather events
that occurred during 2014). Now we wonder
how these extreme weather events affect
economies.
The industrialization of the developing world is creating unsustainable pollution levels. The
solution requires a technological and an intellectual revolution; an alternative route to
economic prosperity that preserves resources and limits carbon emissions has to be developed be-
fore it’s too late.
Nirupama Rai, PGDM RM | 2015-17
Page 11
While discussing the influence of global
warming on extreme climate and weather
events, Noah Deffenbaugh, an associate
professor of environmental Earth system
science at the Stanford School of Earth
Sciences, said "If we look over the last decade
in the United States, there have been more
than 70 events that have each caused at least
$1 billion in damage, and a number of those
have been considerably very costly." This
statement highlights the untold amounts of
money being funneled into damage control
worldwide resulting due to global climate
change and extreme weather events.
A number of countries and companies have
long been worried that the costs of tackling
climate change by means of prevention,
mitigation or adaptation will be prohibitive
and choose to rather deal with the
consequences. They often assume (or hope)
the consequences will not be as bad as
scientists are predicting. Economic studies
have proved otherwise by consistently
showing that cost of inaction on climate
change is higher than cost of action. The chart
in fig2 shows total costs for action on climate
change by 2100 to be about $11 trillion while
damages will be about $8 trillion. With
inaction, however, damages by 2100 will be
around $20 trillion.
The impacts of climate change have far
greater consequences than economics,
however. While it may be possible to put a
dollar figure on the costs involved in
relocating people, providing humanitarian aid
to countries experiencing drought, and the
cleanup of areas that have experienced
extreme weather or flooding, calculating the
cost of human suffering involved in those
occurrences and putting a dollar figure on it is
of course impossible. There is nothing more
threatening to the health of our economy
than climate change, yet frequently there are
those defending environmentally destructive
activities by claiming that they are doing so
for the sake of the economy. The truth is that
the action they are defending would most
likely be good for the economy in the short
term but in the long term would also
contribute to economic hardship and the risk
of massive global recession, not to mention
the incalculable costs of human suffering.
Rising pollution in the developing world is
ranked as the sixth most significant global
trend this year and in Asia it’s the third. The
industrialization of the developing world is
creating unsustainable pollution levels.
Page 12
The solution
requires a
technological
and an
intellectual
revolution; an
alternative
route to
economic
prosperity that
preserves
resources and
limits carbon emissions has to be developed
before it’s too late.
In my opinion it’s high time we started
looking at the long term implications of a
damaged environment when mapping out
current economic strategies. This is a great
opportunity for the private sector to take
advantage of. Since the challenge of response
is the challenge of development, we need to
turn this into an investment question.
Presently, we’re only putting band aids on
the problem: the disaster happens, and we
express sorrow. We raise funds and send aid.
We try to relieve whatever pain we can with
the best intentions. Yet we still wait for the
next crisis. Running from disaster to disaster
will not work. The solution is to strengthen
resilience before disaster strikes. That means
investing in developments that work in the
future, not just in the short-term. Costs can
be high and the speed of change can be slow,
but long-term payoffs are impressive: for
national economies, for business, and
certainly for the poorest and most vulnerable
populations who will suffer and pay if we fail
to take these measures.
Total savings (in Banks) of the people in China
is estimated to be around $7.5 Trillion as of
today.
Page 13
Is Gold Losing it’s Shine?
The shine of gold has reduced post 2013 and
continues to diminish further. So what exactly
caused this mishap? Do people not care about
their yellow metal anymore? What caused
them to abandon gold?
A country’s reserves are a combination of
both gold and currency. Similarly the world
trade depends both on dollar as well as gold.
Though gold remains to be inversely
proportional to dollar value as well as
insignificant to the stock market fluctuations,
post the 2008 global recession, when US
economy suffered a downfall and the
companies were going bankrupt, investors
found refuge in gold. Even the US credit rating
was degraded from AAA+ to AA+ and all this
while gold rates climbed new peaks. Now that
the world economy is improving and dollar is
again
getting
strong, gold
has been
slowly
losing
ground.
Several
reasons can
be provided
to explain this downfall yet it is suggested that
while seasonal factors have played a role, the
main drivers are more structural in nature.
Gold being a dead asset is seen to be a safe
option when the times are tough.
The major gold consuming countries have
been China and India. In the year 2014, the
consumption of gold was led by China with
895 tonnes to be followed by India with 852
tonnes. The country that stood third i.e. US
was nowhere close with just 242 tonnes.
China, a country which accounts for one-third
of global gold demand, has devalued its
currency. In China, people have already
started shifting towards investing in equities
over gold. In fact, China dumped a huge
amount of gold in the market, causing the
prices to fall further. It was said that some 33
tonnes were sold in shanghai market as
investors sought to look for better prospects.
In India, higher import duties and strict import
quotas have limited supply on the domestic
market. Over the past two years, the
government has implemented a lot of
measures to curb the demand for gold, the
second largest import after oil, as a means of
reducing the country’s large trade deficit. In
India, two-thirds of the demand for gold
comes from rural areas, however poor
monsoon
reduces
the rural
customer
demand.
There has
also been
a shift in
the
spending pattern and lifestyle of Indians.
Despite having access to more disposable
income in their hands, they choose to invest
in property and in options other than gold.
Another player in driving the world economy
apart from gold and dollar is oil. A few years
back no one could have imagined that gold,
the most prized commodity, would lose
ground when oil consumption in emerging
markets such as
Low crude oil prices points to lower
inflation and as gold is considered a hedge
against inflation, this has a negative effect
on gold prices as well. With the oil prices
continuing to fall and no signs of inflation,
gold prices might erode further.
Juhi Sharma, Welingkar School of Management | 2015-17
Page 14
China and India was constantly going up and
the oil producers were finding it difficult to
meet the ever growing demand. For a really
long time US laws dating to 1970’s had
restricted them from exporting oil. Yet once
they discovered huge reserves of shale in
Texas, they replaced oil from all oil producing
countries except Canada with the inexpensive
crude from Texas. Soon the ban on exports
was as well lifted by the U.S Government
further reducing oil prices as another country
had started supplying oil to the world. Low
crude oil prices points to lower inflation and
as gold is considered a hedge against inflation,
this has a negative effect on gold prices as
well. With the oil prices continuing to fall and
no signs of inflation, gold prices might erode
further.
Despite gold losing its shine, it has managed
to maintain a hold on central banks, as the net
purchases in first quarter of 2015 were
reported to be 119.4 metric tonnes, which is
almost on par with previous year’s 119.8
tonnes recorded in the first quarter. Russia
has emerged as the biggest consumer with 30
tonnes in its account. Countries across the
world need to maintain a diversified portfolio,
hence emerging markets came out as the
biggest buyers this year. Overall with the
world moving towards economic stability,
consumers ditching gold for dollar, countries
like China and India resisting gold and oil
prices constantly falling, the future of gold
remains questionable for the near future.
By the mid-20th century, America’s top three auto
manufacturers — General Motors (GM), Ford and Chrys-
ler — produced approximately two-thirds of all cars sold
in the world.
Page 15
Impact of Rupee Depreciation on India’s Export and Import
The theoretical understanding that a weak or
depreciated currency increases export
competitiveness and results in higher exports,
is reinforced by the experiences of the East
Asian countries of Japan, China, Korea and
Taiwan. It is a well-known fact that China
achieved its export-led double-digit growth by
keeping its exchange rate deliberately
undervalued. Chinese exports took off in early
2000 after the currency was unified in 1998
and effectively depreciated by nearly 30% as
China was securing its entry into the WTO.
Since then, exports rose by an average of 20%
annually, increasing its share in world exports,
higher than Japan and overtaking Germany as
the world's largest exporter in 2009.
India's export behaviour is not all that
different from other Asian economies. In the
case of Indian exports, the Government
authorities cannot ignore the impact of rupee
exchange rate on export performance. A
relatively weak rupee has several advantages.
It inhibits merchandise and service imports;
curbs wasteful energy-intensive consumption;
encourages import substitution and promotes
energy conservation.
Service exports, particularly software exports,
the fastest rising component of external
earnings emerge to be clearly and significantly
negatively correlated with exchange rate
movements. This finding is substantiated by
higher revenues of IT and BPO companies as
rupee depreciates. India's services exports-
especially software services are relatively
more price-elastic and benefit from a weak
rupee. India's share of services exports in the
world improved at a much faster pace than its
share of merchandise exports. Services sector
contributes around 60% to India's GDP, 35%
to employment, 30% to exports and accounts
for more than 40% of FDI into the country.
Promoting services exports that include
software, in-bound tourism, health sector
earnings, encouraging our NRI remittances
and discouraging outbound tourism and
payments to non-resident
factors of production
requires a suitably
depreciated rupee. These
measures will provide a
real improvement in our
current account balance
and not the protectionist or
administrative measures
adopted recently. Merchandise goods exports
are helped by weak rupee if the depreciation
of exchange rate is sustained over time and its
volatility is minimised. There are negative
impacts like increase in import bill, inflation,
burden on government and industrial foreign
borrowings hurting import based industries.
According to the Economic times, the 8%
depreciation of rupee against the dollar shall
result in a 20-25% rise in prices of imported
goods. Rise in prices of all imported goods and
imported raw materials will adversely impact
corporate profits.
A relatively weak rupee has several
advantages. It inhibits merchandise and
service imports; curbs wasteful energy-
intensive consumption; encourages import
substitution and promotes energy
conservation.
Nikhita Panday, PGDM IB | 2015-17
Page 16
India being an import based economy is
heavily dependent on imports for energy
needs and rupee depreciation is inflating this
import bill. A depreciation of the domestic
currency results in higher import costs for the
country. Failure of a similar rise being
experienced in the prices of exportable
commodities is going to result in a widening
of current account deficit (CAD) of the
country.
RBI needs to
keep a sharp
eye on any
tendency for
the rupee to
appreciate, as
an overvalued
currency hurts
India's composite external earnings and helps
directly in widening the current account
deficit, thereby increasing the country's
structural external sector vulnerability. While
domestic business oriented companies may
remain largely unperturbed by the declining
rupee, they too may find the inflationary
impact in their business. Also, companies
using domestic input and exporting most of
output will gain the most from rupee
depreciation.
‘Adobe’ is named after Adobe creek which ran be-
hind the house of co-founder John Warnock.
Rise in prices of all imported goods and
imported raw materials will adversely
impact corporate profits. India being an
import based economy is heavily
dependent on imports for energy needs
and rupee depreciation is inflating this
import bill.
Page 17
The Chinese are coming….
The ‘devaluation’ of the yuan drew much
media attention this week and some analysts
feared competitive currency devaluation by
other central banks. Analyst seems to have
taken a cue from an African proverb,
“Gazelle in an African Savanna runs faster
than the next gazelle to survive from leopard
attack.”
There goes an old folklore in China that a
man after facing rejection from his woman
for his marriage proposal, persisted with
‘Take a second look lady; it costs you
nothing’, resulting in his proposal’s
acceptance.
So on a second look, a different side to the
devaluation story pops in. Reviewing the
situation, the devaluation is not only meant
for putting the economy on track but is also
related to IMF’s recent decision to postpone
t h e
inclusion of
C h i n e s e
currency in
the Special
d r a w i n g
rights (SDR),
f u n d ’ s
basket of reserve currencies. But how far can
the inclusion be avoided?
The answer is not very long, as evident from
IMF president Christine Lagarde’s statement
few months back that, “the renminbi’s
inclusion is a matter of when, not if”.
The lame duck love falls apart:
China invested for many years its dollar
reserves in US treasury bonds pushing the
rates down and when it ran out of safe
assets options, it bought the US government
sponsored enterprise (GSE) papers.
In the midst of Lehman brother’s failure and
other bailouts, what largely went unnoticed
was US government’s compulsion to bailout
GSE’s to safeguard China’s investment in GSE
papers.
As the lame duck love with US felled apart,
China encouraged domestic consumption
which resulted in a commodity boom, a real
estate bubble, weak shadow banking and
other issues which proved of not much help
to bolster the economy.
China views the ambitious ‘One Belt and One
Road’ mantra will in a way use its reserves
effectively and propel growth in China
without depending much on US.
Will this plan
succeed? We
will have to
wait and see!
Enters the dragon with his Renminbi:
According to an estimate by Citi, a quarter of
Chinese trade is now being settled in
Renminbi.
Why is China pushing for inclusion of its
currency in SDR?
In the midst of Lehman brother’s failure
and other bailouts, what largely went
unnoticed was US government’s compul-
sion to bailout GSE’s to safeguard China’s
investment in GSE papers.
Gaurhari Pal, PG Finance | 2014-16
Page 18
Inclusion of renminbi will result in IMF
member countries holding renminbi
indirectly through SDR’s; this will allay fears
of countries which as of now refrain in
dealing with Chinese currency. It will help in
creating a prudent financial market in China.
Benefits of this include more job creation as
compared to other financial centers across
the world like London and New York.
Trade settlement in renminbi, removes the
foreign exchange margin, helps in bringing
the cost down, and enables a larger access
to Chinese market. A boon to importers!
Further China’s central bank has
arrangement with other countries central
banks to exchange renminbi with their home
currencies. Many of these countries now
hold renminbi in their foreign exchange
reserves leading to an increased influence of
China.
The Renminbi challenge for India:
According to an estimate released by the
Ministry of Commerce, India’s exports to
China stood at USD 11.95 billion while
imports were USD 60.39 billion in 2014-15.
So, if rupee can hold its fort against the
devalued yuan, it will help in narrowing the
trade deficit with China. A depreciated Yuan
will lead to more dumping of Chinese good
too; on a brighter side it will help companies
get cheap inputs from China.
Other concerns include, depreciation of
rupee to maintain export competitiveness
will increase the import bill (some relief as of
now due to low crude prices).
But increase in crude oil price (when it
occurs) will have cascading effect on the
economy and deterioration in trade balance
will drive the rupee down leading to higher
interest rate. A higher interest rate is bound
to pull the growth down.
Conclusion:
Postponement of inclusion into SDR has only
led to increase in distrust of IMF among
Chinese elites, as they view it to be
influenced by US and its allies.
However China continues its efforts in
capital account convertibility front and in
integrating other countries through its
ambitious ‘One Belt and One Road’ strategy,
though treading carefully by “feeling for the
stones while
crossing the
river.” China
plans to use
its savings
and expertise
to build
infrastructure along this route to propel its
western provinces to growth.
Finally as and when renminbi gets included
in SDR it will no longer be compelled to
invest its savings in US treasury bonds and
feel free from the love hate relationship with
US.
Postponement of inclusion into SDR
has only led to increase in distrust of
IMF among Chinese elites, as they
view it to be influenced by US and its
allies.
Page 19
The recent instabilities in the Middle East
Nowadays, when you open the newspaper
or switch on the television for news bulletin,
most of the shows cover the social unrest
and disorder in some countries or citizens
migrating and crossing boundaries due to
some crisis or tension building in
neighboring countries on some dispute,
especially in Middle East. Today, if one looks
back, he/she will find that there is a rise in
such cases in last 4-5 years in the Middle
East. An important international situation to
be focused is between Yemen and Saudi
Arabia.
Yemen: One word to describe it is chaos. It
all started in 2011 with the revolution
against President Ali Abdullah Saleh who
lead Yemen for more than two decades. In
2012, Saleh’s former vice president Abd
Rabbuh Mansur Hadi became the in charge
and was finding it difficult to unite Yemen
with continuous threats from Al Qaeda in
the Arabian Peninsula (AQAP) and Houthi
militants. In 2014, the Houthis invaded the
capital Sana and pressurized government till
2015 when Hadi and its ministries resigned.
Houthis declared themselves in control of
government dissolving parliament and
installing an interim revolutionary
committee led by Houthi. However, Hadi
escaped to Aden and later to Saudi capital
Riyadh and Saudi authorities began to air
strike in Yemen.
The conflict between the Houthis and the
elected government is also seen as part of a
regional power struggle between Shia-ruled
Iran and Sunni-ruled Saudi Arabia, which
shares a long border with Yemen. Gulf Arab
states have accused Iran of backing the
Houthis financially and militarily, though Iran
has denied this, and they are themselves
backers of President Hadi.
Amol Chanshetty, PGDM A | 2015-17
Page 20
Yemen is strategically important because it
sits on the Bab al-Mandab strait, a narrow
waterway linking the Red Sea with the Gulf
of Aden, through which much of the world's
oil shipments pass. Egypt and Saudi Arabia
fear a Houthi takeover would threaten free
passage through the strait.(Source: BBC)
The ecological background of Yemen
compounded the political instability. There is
immense scarcity of water in Yemen and the
main source of water is groundwater. The
average Yemeni has access to 140 cubic
meters of water per year for all uses. This
water insecurity has a direct impact on
political instability. Outsiders hear most
about the proxy war between factions
supported by other countries, but according
to the Yemeni newspaper Al-Thawra, 70% to
80% of conflicts in the country's rural regions
are water-related. The country's Interior
Ministry has estimated that across the
country, water and land related disputes kill
40,000 people a year - more than terrorism.
(Source: Wikipedia).
The instability in this region is a concern for
the rest of the world even though Yemen
has enough oil and petrol for its use and
export. And for the west, it’s the question of
AQAP which spreads terrorism in United
States.
Saudi Arabia: After founding in 1932, Saudi
Arabia has been one of the most stable, not
to mention richest, countries in not just the
Middle East, but the world. It had a new
leader recently after the death of King
Abdullah bin Abdul-Aziz, and let's just say
the timing could have been better.
Saudi Arabia has long played a part in
stabilizing the region, a role that is needed
as much as ever. Iraq is battling ISIS
militants, who already control much of the
country and are threatening to take the rest.
The Sunni-led government in neighboring
Yemen is out, with uncertainty of what
comes next or whether some of its violence
will spill over into Saudi. And there's the
threat from across the Persian Gulf in Iran.
On top of all this, the price of the Arab
nation's economic driver, oil, has plummeted
over 50% since the summer to less than $50
a barrel. That's key, because oil revenues are
a bit part of Saudi government's revenues,
and a big reason it's so important on the
world stage.
The Middle East is unstable enough,
especially since the Arab Spring. The Saudi
government was one a few regional
governments to weather that storm
smoothly. But now, there's even more need
for stability, something that having a new
leader may not help with.
It is very possible that Saudi policy doesn't
change much under King Salman. Also it's
not yet clear how the transition will affect
the Saudi government's relationship with the
United States, whose leaders have long been
able to count on Riyadh for counsel and
support. Another possible impact of King
Salman's ascension has nothing to do with
geopolitics, but rather how much you pay at
the gas pump. The new King could decrease
the amount of oil pumped in Saudi Arabia,
which would decrease supply and increase
prices. Even without any Saudi action, the
price of oil has already started climbing after
King Abdullah's death.
Page 21
Impact of the war: The most significant impact
was the volatility of oil prices. The UN
Secretary General has estimated the $274
million aid required immediately for relief and
rehabilitation of war victims. The U.N.
Children’s' Fund estimates that 100,000 people
have been displaced across the country in the
last two weeks, while Oxfam says that more
than 10 million Yemenis do not have enough
food to eat including 850,000 malnourished
children. Over 13 million people have no
access to clean water.
Yemen is home for about 1,00,000 people of
Indian origin which are now Yemeni citizens
according to Indian embassy. India evacuated
4000 Indians from Yemen.One of India’s most
important shipping routes passes through the
Gulf of Aden, accounting for imports of $50
billion and exports of $60 billion every year,
according to the shipping ministry.The route is
so important that the Indian Navy has
maintained a presence in the Gulf of Aden
since 2008 to protect Indian vessels and the
Indian crew of ships flying the flags of other
countries.
Tennessee is bordered by 8 states: Alabama,
Arkansas, Georgia, Kentucky, Mississippi,
Missouri, North Carolina and Virginia - more
than any other in the US.
Australian Mobile Advertising Spend in
financial year 14 was $620.2 million.
Page 22
PANGEA 2015
On 26th September 2015, IBS@SIMSR
organized their flagship event PANGEA 2015-
The International Business Conference. The
event had on board some of the leading
industry veterans to share their experiences
and insights with the students. The speakers
were Mr. Arvind Mehra, Regional Sales Head
(Middle East and South Asia)- Cobham
Surveillance UK, Mr. Ankur Mehta, VP- Marsh
India, Mr. Durgesh Buxy, Dy. General
Manager (Exports) - Raymond Ltd and Mr.
Mangesh Kukalkar, Marketing Manager-
Pfizer Ltd. The aim was to give exposure to
the management students to the evolving
industry practice, complement their
classroom learning and garnering essential
industry insights which will help the budding
managers at SIMSR, Mumbai.
The Conference began with the SIMSR’s
tradition of lighting the lamp and reciting the
Campus prayer to invoke the Gods for their
blessings. The first speaker of the session Mr.
Arvind Mehra spoke about the Emerging
Trends in International Trade Finance. He in a
very engaging one hour session took the
students through a myriad of topics such as
short term, medium term or long term
trades, sources of International trade finance,
institutions involved in international trade
and documents associated with it. He also
used a detailed analysis of various
transactions required for international
trading of coffee as an example to help us
understand the concept better.
Next, the presentation on Risk Management
and Emerging Global Trends in Insurance
Business specifically brokerage by Mr. Ankur
Mehta gave us valuable insight on
significance of insurance and role of
insurance brokers. He with the help of a very
concise presentation took us through how
changes have come in the methods employed
to procure insurance and emerging trends in
India in field of insurance brokerage. He also
answered queries from the audience on
concept of re-insurance, umbrella insurance
and normal cycle of insurance broking.
Mr. Durgesh Buxy shared his experience at
Raymond to help us understand ‘how to
make a brand in India and take it global’. He
dwelt on the logic behind Raymond
challenging conventional wisdom by opening
stores in Bangladesh and Pakistan. He also
highlighted how the successful ‘Made to
Measure’ concept of Raymond helped it to
enter even prestigious markets like Dubai. He
gave a handy tip such as to be able to survive
and flourish, a foreign business must respect
the law of the land and also registration of
the brand is extremely crucial. He narrated
his anecdotal experience to make us grasp
the concepts in a more engaging way.
Last but certainly not the least the concluding
speaker, Mr. Mangesh Kukalkar made us
aware about the current challenges faced by
pharmaceutical industry and how inspite of
health care being an important industry the
growth is stagnated. He with the help of a
very informative and impressive presentation
explained how pharmaceutical industry has
moved from suitability to value addition and
various measures taken to bring substantial
growth in the industry, such as companies
collaborating for research and development
and sharing resources, researches, talents,
etc. to bring product faster to market.
Page 23
He also used this opportunity to make students aware of various prospects in pharmaceuticals
industry for those who are not from this particular field.
Students interacted with these eminent industry experts after each presentation. The conference
closed with the vote of thanks to all the speakers, participants and IBS members, given by Prof C.
P. Joshi, faculty mentor (IBS@SIMSR).
Prof. C. P. Joshi with our esteemed speakers
IBS team with Prof. C. P. Joshi and our eminent speakers
Page 24
Students attending PANGEA 2015
Mr. Arvind Mehra sharing his insights about
International Trade Finance
Mr. Ankur Mehta interacting with students
Page 25
Mr. Durgesh Buxy sharing his experiences of taking
Brand Raymond global
Mr. Mangesh Kukalkar expressing his views on
Pharmaceutical Industry
Prof. C. P. Joshi giving vote of thanks
Page 26
CROSSWORD
ACROSS 2.When one country sells it's products in another country below the cost of production 4.The original name of google 5.what's common-Bentley,Bugatti,Audi,Ducati 6.Parent company of Google 9.IBM's web based e-mail service 10.Ipad's retina scan is manufactured by
DOWN 1.First scooter to cross 1 crore in sales 3.Which kind of trade involves trade of services 4.'Making india beautiful' is the tagline of? 7.Mnemonic of a management tool used for studying macro-environment of a region. 8.Govenment imposed restriction on free international exchange of goods and sevices
Solutions— 1. Activa 2. Backrub 3. Volkswagen 4. Alphabet 5. Verse 6. Tariff
7. Dumping 8. Invisible 9. PESTLE 10. Samsung 11. Big Bazaar