Volume 1, Issue 6November 2011 MI`Bytes BUSINESS LETTER Crises in Crises THE Impact of crises DEFICITS. By 2009, com- some financial institutions should be very local, Indian bination of international and clearly profited from the companies and citizens do local meltdown (the world growing Greek government debt but reality is very dif- not have any worthwhile financial crisis and uncon- ferent from the interpreta- investment in countries or trolled government spending tion. banks where debt crisis has respectively) pushed coun- In April 2010 Greek govern- been spreading like havoc. try in great trouble. Early ment asked EU/IMF for “The impact on export 2010 it was revealed that bailout package. IMF said it should be minimal as our the, Government had been was “prepared to move ex- export to be trouble econo- consistently and deliberately peditiously on the request” mies are not significant; misrepresenting the coun- but Greek debt rating was panic does not lasts in per- try‟s economic statistics to decreased to BB+ by S&P petuity it lasts for short peri- keep with the monetary un- and estimated that investor ods of time one way or the ion guidelines. This had would lose 30-40%of the other” said PRASHANT enabled Greek Government money. Stock market and JAIN (Chief investment , to spend beyond their euro currency declined in HDFC MUTUAL FUND) means, whilst not disclosing the response. the actual deficit from the Debt crisis started from world. In 2010 situation In may 2010 series of AUS- GREECE, where the gov- became more grime when TERITY measures was pro- ernment was trying to opti- deficit estimated to 13.6% posed, but in Nov. 2010 mize the foreign capital (one of highest in world) problem became murky, after the removal of and public debt hit around which gave signal to harsh Inside this issue: RIGHT WING 120% of GDP. The commis- DEBT CRISIS. Same in the MILITARY JUNTA. The league was SPAIN, PRO- sion and finance ministers TUGAL AND GREECE, government wanted to bring late last year found Greece Corporate Speaks 2 now in “credibility prob- disenfranchised left -leaning had failed to take „effective lem” and the reason is very portion of the population action‟ to curb its budget clear i.e. lack of ability to News Bits 3 into the economic main- repay adequately due to this deficit, which is the result of stream. During the period of decline tax revenue. All low growth rate and less Liquid vs. Profit 3 2000-2007, growth rate of FDI. situations being against it the country was 4.2% as and with no any effective Crises in Crises 4 foreign capital flooded in policy the made situation the country. Strong econo- Cont. on page 4 worse. my allowed government to About Us 4 run large STRUCTUAL Although in the short run
Page 2 MI`Bytes CORPORATE SPEAK Mr. RAJEEV SHARMA, DY. GENERAL MANAGER, MITSUBISHI ELECTRIC INDIA Q1: The earthquake in Japan has affected your company. What has been the strategy to overcome losses incurred by the damage? Ans: Our plant, too, was hit by the earthquake and the vendor and ancillary units were affected most. We have shifted our production to Kyoto where plants are at 80% capacity. We have also shifted our 20-25% production to Malaysia, Thailand and Korea and rationalization saved us. Q2: How is the company positioned at the moment and how far is the growth trajectory going? Ans: We have an increasingly huge demand but are suffering from supply; inventories are low, this year, however, we intend to do business Rs.300cr. By March 2016, business of MEI shall be Rs 1000cr. Q3: MEI, being a giant and highly innovative, quality driven company, has refrained from entering into consumer durable goods. Why? Ans: MEI is an innovative and quality driven company, we strive more for quality, technology and after sales services. Till we are not in position to provide after sales services, we do not enter. For the time being we are into B2B sales, since we only have the infrastructure for B2B. But with the current infrastructure we cannot penetrate into a hard core consumer market as we are a wholesale company under FDI rules. Q4: To enter into Indian market, have you customized your products to some extent? Ans: To some extent, yes, we have customized our products, keeping in consideration with the Indian customer demand. Since we cater primarily to a premium segment of the market we try finding out features needed by consumers, and after doing a market research we then ei- “Our thinking is to ther drop certain of those features or add them as per requirement. For instance, we have 500 models of Air Conditioners but in the Indian market we offer only 2 of those models. have a global view Q5: How do you position your company in raising an Indian brand presence in such a fierce, competitive market? with a local Ans: We brand our selves as a technology-oriented company, a pioneer in reliable technology approach” and a company which works out on future. In Eco-product Exhibition, Delhi, we presented our selves as an eco-friendly company and have put a target of being a zero-emission company by 2021. Q6: Word is Hitachi and Mitsubishi Heavy Industries are on a merger. From governance point of view companies may face significant challenges since time and again mergers in Japan don’t work out in the end. Ans: Yes, actually a 50-50 doesn’t work. In a merger there will be challenges as the work- culture philosophy of both companies differ, so our strategy is not to merge as a whole. Some“Government investment is plants from both companies will be merged.round to US$90bn in Q7: Generally Indian distributors do not have standardized procedures as needed by aDMIC ” company like MEI, so how do you keep up with those distributors. Ans: Our objective is to have a global view with a local approach. We had some difficulties at the distributors end and being a sales company we set the parameters for distributors which were quite easy to follow. At the same time, we found our distributors far ahead of us in fields like servers or information communication.“India aims to achieve a Q8: Are there any plans to capitalize on Delhi-Mumbai Industrial Corridor?turnover of US$400bn from Ans: Being a Japanese funded corridor, we are closely related to this project. In DMC theredomestic electronics manu- are 2 projects which are going simultaneously, the Dedicated Freight Corridor (DFC) andfacturing by 2020 ” Delhi-Mumbai Industrial Corridor (DMIC). In DFC we supply locomotives which are capable of 80kmph and a load-carrying capacity of 8 times more than the existing capacity. In DMIC we are developing an entire industrial area in Gujarat and are in the process of making a Smart City too. Q9: Your advice to our IB students in today’s global, socio-economical environment. Ans: Believe more in learning where the mantra is hard work. Don’t run after money, chase excellence and things will follow suite.
Volume 1, Issue 6 Page 3 LIQUIDITY VS. PROFITABILITYA finance manager is always faced with a confusion between liquidity and profitability. Hehas to strike a balance between the two terms.Liquidity: It means the firm has adequate cash to pay off its bills and to make unexpectedlarge purchases. It also focuses on a firm having cash reserves to meet emergencies.Profitability: It means that the accumulated funds of the firms are used so as to yield the high-est return‟Liquidity and profitability are very closely related. When one increases, the other decreases.Apparently, liquidity and profitability goals of the finance manager are contradictory. For ex-ample, if higher inventories are kept in anticipation of increase in price of raw materials, prof-itability goal is approached but the liquidity of the firm gets endangered. Similarly, the firmfollowing a liberal credit policy may be in a position to push up its sales but its liquidity willdecrease. This is also a direct relationship between higher risk and higher return. Higher riskone the one hand endangers the liquidity of the firm whereas, higher return on the other handincreases its profitability. A company may increase its profitability by having a very high debt-equity ratio. However, when the company raises funds from outside sources, it is committedto make the payment of interest, etc., at fixed time and in fixed amounts and hence to that ex-tent its liquidity is reduced.Thus, the finance manager has to choose between risk and return and generally he chooses in-between the two. He paves its ways through forecasting cash flows and analysing the varioussources of funds. Forecasting of cash flows and managing the flows of internal funds are thefunctions which lead to liquidity whereas, cost control and forecasting future profits are the “Global 2000 companies nowfunctions of finance manager which lead to profitability. An efficient finance manager opt for account for $32 trillion inthe level of operations where both risk and return are optimised. Such a level is termed as risk-return trade off and every financial decision involves this trade off. At this level the market revenues, $2.4 trillion in profits,value of the company‟s share would be maximum. $138 trillion in assets and $38 trillion in market value. AllMd. Ibrahim Badar metrics are up from last yearMaster of International Business with profits growing the most, rising 67%. ” MI’BYTES IN KOTRA LIBRARYIt is an honor for Mi‟bytes to grace the shelves of the library of KOTRA which is the officialtrade and investment wing of Government of Korea, promoting bilateral trade between Indiaand Korea.The library provides access to the major collections of Korea and overseas newspapers. Thecollections also include popular magazines, trade papers and comics. Mi‟bytes is read by vari-ous Indian and Korean visitors and is popular since the next edition has already been request-ed! The newsletter is In Vogue with young, enthusiastic management graduates and it is quitemotivating to see its popularity growing amongst the masters in International trade.We thank KOTRA for this gesture and would work even hard to improve our future editions.Team Mi‟bytes.
CMS, MIB ABOUT US MI`bytes was started by students en devour to give themselves a platform to share their analysis and report on business. Produced Phone: 9891984210, 9871858982E-mail: firstname.lastname@example.org, by an editorial team known for its quality & innovation. We also, email@example.com acknowledge the contributions of executives who run corporate houses and by doing so we also integrate industry with MIB. Crises in Crises Cont. from page 1 EDITOR-IN-CHIEF: In June 2011 S&P lowered have high deficit. ITALY we must not analyze things Asst. Prof. SAYED WAJID ALI the Greek sovereign debt to also has high debt , but aver- easily and so early, as CCC (lowest in the world). age budget position is better MOODY‟S global rating The crisis sent ripples than other countries. Crisis firm downgraded SBI by around the world with major may reduce the confidence one notch to D+. Reason in EUROPEAN countries. STUDENT EDITORS: loss in stock markets and being lender‟s low tier –I, So the disease is now con- stock exchange. Side effect verting into syndrome. CAPITAL RATIO AND SOOBIAN AHMED of globalization is now more DETERIORATING TULIKA SAIKIA Sovereign debt crisis in NAMITA DHAMANI clear; after European crisis some EUROPEN countries ASSEST QUALITY. SAHIL BHAT whole world is Shivering. and slow recovery in the US Countries with constant will not impact the INDIAN growth are now in crisis and IT industry fiscal, “we do INTERVIEW BY: investors are in dilemma. not see the INDIAN IT in- MANIKA CHUGH dustry getting impacted by sovereign debt crisis or slow MOHD. FURQUAN, SOOBIAN AHMED Experts are now coming up recovery in this geogra- Masters of International SAHIL BHAT with ideas like GREECE phies” said NASSCOM Business should concentrate on his own economy with their president SOM MITTAL. own currency and engi- GLOBAL GDP is expected neer an “orderly default”. to grow at 3.1 percent in Where Greece represent 2011, following 3.9 percent only 2.5% of the euro zone, despite the size, danger is in 2010. But if we look on basically about sending the export report, Indian wrong signal to investors export continued its upward who are already hesitating trend, posting 44.2 percent in investment and the RELI- year growth, despite slow- ANCE factor are gone with down in western countries the wind . especially in the western Euro zone countries like market and euro zone. But PROTUGAL , IRELAND