February 2014
PRATIBIMB The Reflection of Management FINANCE | GENERAL MANAGEMENT | HUMAN RESOURCE | MARKETING | HEALTHCARE | SYSTEMS | OPERATIONS
Digital Marketing In Apparel Industry
Business Intelligence
Mobile Apps Changing Business Landscape
Companies’ Act, 2013
Microsoft Under Threat From Google Apps
Paradigm Shift In Automobile Industry
Pratibimb | February 2014 | 1
A Students’ Initiative
T. A. Pai Management Institute Manipal, Karnataka
About TAPMI T. A. Pai Management Institute (TAPMI) is a premier management institute situated in Manipal and is well known for its academic rigor & faculty-student interaction. The Institute has been recently ranked amongst top 1 per cent of B-schools in India & 4th in the South Zone by The Week Magazine. Founded by the visionary, Late Shri. T. A. Pai, TAPMI’s mission is to provide much needed impetus to the task of building professional management capability in the country. In the process, it has also played a role in strengthening the existing educational and health infrastructure of Manipal.
Our Mission “To excel in post-graduate management education, research and practice”.
Means: By nurturing and developing global wealth creators and leaders. By continually benchmarking ourselves against best in class institutions.
By fostering continuous learning and reflection, achievement orientation,
creative interdependence and respect for diversity. Value Bounds: Holistic concern for ethics, environment and society. Pratibimb | February 2014 | 2
PRATIBIMB TAPMI’S MONTHLY e-MAGAZINE
VOLUME 2, ISSUE XXIV
FEBRUARY, 2014
TAPMI’s e-Magazine - is the conglomeration of the various specializations in MBA (Marketing, Finance, HR, Systems and Operations). It is primarily intended to provide insights into the plethora of knowledge that relate to the various departments of Management and to give an opportunity to the students of TAPMI and the best brains across country to exhibit their creative cells. The magazine also strives to bring expert inputs from industries, thereby bringing the academia and industry together. Pratibimb the e-Magazine of TAPMI had its first issue in December 2010. The issue comprised of an interview of well known writer Ms. Rashmi Bansal along with a series of articles by students and industry experts like MadhuSudan Rao (AVP-Delivery, Mahindra Satyam) & Ed Cohen who is a global leader and chief learning officer who led Booz Allen Hamilton & Satyam Computer Services to the first rank globally for learning & development . It also included a hugely successful and engrossing game for finance geeks called “Beat the Market” to bring out the application based knowledge of students by providing them the platform where they were expected to predict the stock prices of two selected stocks on a future date. The magazine is primarily intended for the development of all around management knowledge by providing unbiased critical insights into the modern developments. TAPMI believes that learning is a continuous process and is not limited to the four walls of the classroom. This viewpoint is further enhanced through Pratibimb wherein students manage and contribute to create a refreshing learning environment outside the classrooms which eventually leads to a holistic development process. The magazine provides a competitive platform and opportunity to the students where they can compete with the best brains in the B-Schools of the country. The magazine also provides a platform for prominent industry stalwarts to communicate their views and learning about and from the recent developments from their respective fields of business which in turn helps to create a collaborative learning base for its readers. Pratibimb is committed in continuing this initiative by bringing in continuous improvement in the magazine by including quality articles related to various management issues and eventually creating a more engaging relationship with its readers by providing them a platform to showcase their talent. We invite all the best brains across country to be part of this initiative and help us take this to the next level.
Pratibimb | February 2014 | 3
Director’s Message
At the outset I would like to convey my greetings to the Pratibimb team for working on a publication rich in content and creativity. This publication provides us a benchmark for continued improvement in overall development at TAPMI. Issue after issue, Pratibimb continues to serve its long intended dual purpose of serving as a platform for expression of thoughts, ideas and opinions as well as a source of information, insights and conceptual knowledge.
As one of the premier B-schools in India TAPMI upholds its reputation by sharing perspectives in business management among both theorists and practitioners of this domain. It is through this sharing that knowledge prospers and evolves.
Dr. R C Natarajan Director, TAPMI
Pratibimb | February 2014 | 4
From the Editor’s Desk Dear Readers,
Editor in Chief
Greetings from Pratibimb! The quest for knowledge is an ongoing process and not the work of the day. Therefore, we at Pratibimb strive to make your journey continuously fruitful by providing you with gems of articles written by management students, from the most esteemed of universities.
Debayan Bhattacharjee Marketing & Advertising Pallavi Prasad
Design
First, we have Mr Kishalay Datta and Mr Abhishek Kumar from NMIMS talking about the different kinds of apps in the current world scenario, in their article ‘Mobile Apps – Changing the Business Landscape’. But apps as well as Digital marketing are a recent phenomenon of managerial interest, and exploring the latter are Ms Maithili Wagle and Ms Nadisha Kamat from GIM, who deal with the approaches of different brands towards Digital marketing in their article titled ‘Digital Marketing in the Apparel Industry’. Next, we have an article titled ‘Business Intelligence – The next ruler of IT’, by Mr Gautam Malhotra and Mr Akhil Dhingra from Great Lakes Institute, who explore the potential of the concept of Big Data through various examples and research findings. Finally we have two articles, ‘Paradigm shift in Automobile Manufacturing’ by Ms Deepali Singhal and Mr Vivek Acharya from NMIMS, which deals with the shift in the approach of automobile manufacturers towards waste generated by these industries, and ‘Interpreting the New Companies Act, 2013’ by Mr Vivek Cheruvapally and Mr Sarvesh Sharma from NITIE, which explores the Act using different approaches and angles. This is the present offering from Pratibimb, and we promise to be back with more such, if not better, sources of knowledge and understanding, truly an intellectual treat for us all.
Deepanwita Nandi Priyam Goyal
Cover Design Avni Mooljee Communications Debayan Bhattacharjee Pallavi Prasad Operations Ayon Kumar Akash Gupta
Sub-Editors Amal Roy Amruth C Faculty Advisors
Till then, dear readers, ‘Keep reading, keep reflecting’
Prof. Aparna Bhat Prof. Chowdari Prasad Prof. Vidya Pratap Prof. Vinod Madhavan
Pratibimb | February 2014 | 5
Contents Digital marketing in Apparel Industry
7
Maithili Wagle and Nadisha Kamat Goa Institute of Management
Business Intelligence– The next ruler of IT
8
Gautam Malhotra and Akhil Dhingra Great Lakes Institute of Management
Mobile Apps– Changing the business landscape
11
Krishlay Dutta, Abhishek Kumar NMIMS, Mumbai
Interpreting the new Companies Act, 2013
13
Sarvesh Sharma, Vivek Cheruvapalli NITIE
Paradigm shift in automobile industry Vivek Acharya, Deepali Singhal NMIMS, Mumbai
Pratibimb | February 2014 | 6
17
Digital Marketing in the Apparel Industry Maithili Wagle, Nadisha Kamat, Goa Institute of Management Who would have thought of buying apparel and footwear online 10 years ago? But today it’s not a big deal. People are comfortable buying online, risking the fact that what they bought might not fit them or suit them when worn, thanks to the easy payment options and return policies. Apparel shoppers are motivated by convenience and give priority to availability over other features. Consumers use the internet to compare prices and make an informed decision regarding their purchase. Also, it is now possible for consumers to scan the barcode of an item on their smartphones and compare prices. Research shows that more than one in five apparel shoppers use their tablets or mobile devices on a daily basis for shopping. Approximately three in four consumers investigate online after seeing an offline ad. And why not? E-commerce websites have made browsing convenient and enjoyable; they provide variety, a portfolio of different brands, a size chart and what not! In a world where more and more young consumers rely on digital media, compared to a radio ad, a TV ad, a newspaper ad, brochures and pamphlets, a video ad is most likely to make a consumer purchase. Also, 18 to 34 year olds are two times more likely to rely on a video on deciding a brand to choose from and make a purchase. Apparel brands are going all out to make their presence felt everywhere. They are coming up with new innovations and ideas to make full use of the online medium which is cheaper and more effective. The option to shop online which is a recent development is not available only on websites like Jabong and Flipkart. Individual brands have started the Shop Online option on their own webpage. Mobile recharge websites like Freecharge provide coupons on every purchase which promotes shopping online. Benetton’s web radio, which is an audio service transmitted via the Internet and accessible from anywhere in the world, is a perfect example of how to attract potential consumers to visit one’s page and keep them engaged. Many brands like Zara now have their own mobile app where you can go through their collection and also locate a store near your location. In fact Benetton’s mobile app also has the web radio feature in it. Many brands now have a mobile website so that you can surf through the website on your phone with ease. Some brands like Parx have a tweet mirror in their store which allows you to take photos wearing that particular brand’s apparel and post it on Facebook or Twitter. Retail brands will have to consistently come up with new innovations in the digital space if they want to sustain themselves in the market. References
Pratibimb | February 2014 | 7
(Google Compete Survey, 2012)
Business Intelligence— The Next Ruler of IT Gautam Malhotra, Akhil Dhingra Great Lakes Institute of Management
In 1990s IT was seen as a golden pill for business efficiency. Businesses all over the world were investing heavily in IT and resulting gains were tremendous - Increased Business Communications, readily available data (The world became smaller) and inter department synergies all resulting in huge profitable margins. As the financial parameters peaked for the businesses, so did their IT budgets. Come 2013, we have weathered dot com burst of 2000 and 2008 economic recession. Businesses which survived are harbouring around their core competencies, those inefficient are sinking away, and those who survived are evolving new processes to reduce their costs, but just surviving! With this outlook future of IT looks bleak - Serving client in a new ways and putting in a
few faster systems occupying lesser and lesser space. Earlier it was all about speed and database but how much faster one can be? Information Technology is like a humpty - sitting on the wall to take another jump or fall. All that will matter is if it can help businesses become more efficient in speed, if it can help the business in a more strategic way, if it can do what they are doing and help them create niches, segments, risk assessment and rewards in a way becoming more indispensable to the businesses than ever. All that matters is, if information Technology can help the businesses to take real time decisions in an intelligent way, we do not need efficiency, we need data driven strategies! Business Intelligence or BI as we call, is the future of IT now.
Pratibimb | February 2014 | 8
To understand the future, let us understand the concept called BI. To take an impartial view lets attack its limitations first. BI stems mostly from a concept called correlation. New systems and algorithms run correlations on structured and unstructured data captured from a 1000 odd sources to find patterns which can help managers take decisions. The data over which BI tasks are performed often comes from different sources— typically from multiple operational databases like CRM, ERP, big data, etc. within the organization, as well as external vendors. The data is integrated, cleaned and standardized for the BI task. This is then loaded in repository (data warehouse) on which are performed common BI operations like filtering, aggregation, drill-down and pivoting. End reports are prepared
correlation finding but that is too far subjective in nature. Recent push for big data addresses some of these problems capturing data from everything from Face book to smart phones mostly unstructured in nature and fed into modern analytics tool like SAS can result into powerful correlation and patterns which not even can capture human behaviour but also can attack problems out of usual IT domain. According to the book “Big Data: A Revolution That Will Transform How We Live, Work and Think” - In 2009, engineers at Google claimed they could predict the progress of flu epidemics simply by looking at the words people were typing into their browsers. The idea was both plausible and ingenious; since Google services 3bn search queries every day, the company is quite capable of tracking
and combined user data is sent to market team for segmentation.
often people are asking about flu symptoms or medicine.[1]
Let me quote that BI do not help find direct causality for a pattern. Largely BI thrives on correlations (patterns) not underlying reasons (causes), albeit it may give us insights that direct us towards the causes. (One reason why BI will need huge manpower of Data analysts is to make meaningful insights differ from others)
These may be powerful examples of how companies are accepting and pushing data driven strategies. Raw data transferring into meaningful and useful information is enabling them to have more insights into effective strategic decision making.
Most data for Input today – is from digital sources – It’s called thin Data. (Eg. The data regarding the shopping behaviour – websites visited, payments histories). The other type – called rich data – provides inputs about how humans react socially and what they think of their environment. Thin data may not be apt to capture the entire human behaviour and hence may not be a good tool to know patterns about human behaviour. In some ways a mere common sense can always beat any
Pratibimb | February 2014 | 9
This decision making draws its capabilities from accurate predictive analysis. BI technologies provide current and predictive views of business operations. The common functions of BI include reporting, online analytical processing, analytics, data mining, process mining, complex event processing, business performance management, benchmarking, text mining, predictive analytics and prescriptive analytics. [2] These modern tools and others like data mining for consumer intelligence have paid off for shareholders in
companies like Amazon and Netflix. [3] According to Sudesh Prabhu Senior Director, Sales, EPM/ BI and Exalytics, Oracle India “With rapidly evolving technology trends like big data, mobility and cloud computing, companies are looking at fast, interactive and insightful analytics or BI to remain ahead of competition. [4] Did Adam Smith Thought about BI or Big Data? Adam Smith Spoke of Economic output as a function of Labour and capital, but today a pragmatic Economist may very well call data as a third factor of production. The entire concept of value chain revolves around Data, Creating value by making information transparent and usable (at much higher frequency than ever). BI is enabling even narrower segmentation today (Think of Samsung investing more than 4 billion $ in Market research to find out what customer wants and how create a new product for ever increasing customer segments). The end result is simple, if we can find human need in a more comprehensive way, we may have newer products and services to
offer – That is the exact value BI intends to provide to the customer. Real time BI leading to efficient decision making with efficient productivity growth (Mckinsey predicts application of BI can lead to 60% improvement in Retail margins [5]) and efficient understanding of Business needs lead to overall gains for consumer, Economists call it consumer surplus due to this third factor of production. Future? Mobile BI, new technologies like IBM’s Predictive analysis, Forward looking, Real Time Monitoring, advent of smart phones and exploding social network will be the key drivers for growth. We in business schools and entrepreneurs can be the Stalwarts in this data revolution. With increasingly new start-ups like Mu Sigma, Google analytics, the future of BI looks strong and flourishing.
References
Financial Times Essays, March 1 2013. | James Harkin
http://www.ft.com/intl/cms/s/2/afc1c178-8045-11e2-96ba-00144feabdc0.html
Wikipedia
http://en.wikipedia.org/wiki/Business_intelligence
Business Week’s The Management Blog | Mikkel B Rasmussen, Christian Madsberg
http://www.businessweek.com/articles/2013-07-16/big-data-gets-the-algorithms-right-but-the-people-wrong
Darinia Khongwir for CXOtoday
http://www.cxotoday.com/story/mass-market-for-business-intelligence-begins/
Mckinsey, Insights and Publications
http://www.mckinsey.com/insights/business_technology/big_data_the_next_frontier_for_innovation
Pratibimb | February 2014 | 10
Mobile Apps– Changing the Business Landscape Krishalay Datta, Abhishek Kumar Narsee Monjee Institute of Management Studies, Mumbai
"Consumers are now addicted to always, anywhere, anytime connectivity, and the next 12 months will see them push their mobile lust to obsessive, occasionally nearly insane degrees," says David Mattin, lead strategist at Trendwatching.com. This lust of mobile phones is being driven by apps. The number of app downloads have reached humongous levels of 2 billion and 2.5 billion per month on iTunes and Google Play respectively. Mobile apps have led to new, innovative and profitable business models which have changed the business landscape. We examine some of these models here. App Category: Messaging Popular: Whatsapp, Nimbuzz, Hangout, Facebook Messenger A free app with features like real time group chat, voice chat, picture messaging, and videos which work over cellular data. The app has transgressed the national and international boundaries with free messages even while roaming. Whatsapp has ended the hegemony of SMS and messengers like BBM to become the defacto messaging tool for smartphone users. On June 13, 2013 Whatsapp recorded a massive transaction of 27 Bn. in one day! As of August 2013 the chat has 300 million active users. The mobile service providers are now trying to bundle their data services with messenger services. App Category: Mobile Banking Popular: SBI, HDFC, ICICI, Citi Banks have realized that Mobile Apps are the most appropriate instrument to reach the masses.All of these apps provide many standard services allowing transfer of funds, paying of bills,ticket booking, buying movie tickets; recharging of mobiles and DTH; locating an ATM, and more, on the go. A physical transaction at a branch costs Rs 40-60, an ATM transaction costs Rs 15-20 while a mobile transaction costs Rs 1-1.5. Only 5% of our rural population has access to banking services. With smartphones becoming cheaper, mobile banking apps will be the tool of choice for inclusive banking. App Category: Health and Fitness Popular:MapMyWalk, Fitocracy, Weight Loss, Diet Assistant Mobile apps are a revolution in the Health and Fitness Sector. Several business models are followed which range from providing calorie count of food items, working as a pedometer, creating a detailed workout plan to achieve fitness goals and mashing up video game features with fitness workouts for motivation and fun. The Nike+iPod Sports Kit, measures and records the distance and pace of a walk or run. Thus one can easily track ones exercise schedule and change it accordingly. Nike Inc.'s Equipment division saw an 18% rise in profits for the 2012 compared to its -1% loss during the 2011 fiscal year. Health awareness is rising but people have less and less of time.
Pratibimb | February 2014 | 11
Apps which allow users to track and improve their health BookMyShow has a lion's share of India's more than 12 miland fitness in anenjoyable, informative way,at their own lion e-commerce customers, translating into about 30 milcomfort provide a huge business opportunity. lion tickets annually. PVR has signed a deal of Rs. 1000 crore over five years to reach its target customers. Zomato has App Category: On demand Ridesharing more than 42,000 restaurants across 12 major cities of India and 4,000 restaurants in Dubai listed on it. It had a turnover Popular:Flyte, Uber, Taxi Beat, Get Taxi, Side Car of around Rs. 11 crore in the FY 2013. The app has a community of ride-givers, when somebody App Category: Photo sharing wants a lift, he/she is matched with one of the ride-givers or, the app ties up with cab drivers and cab service provid- Popular:Instagram,Facebook, Flickr, Picasa ers. The communication is synchronized between commuters in such a way so that they can share the cab if they are An online photo-sharing, video-sharing and social networktravelling to the same destination. ing service that enables its users to take pictures and videos, apply digital filters to them, and share them on a variety of There have been several instances of Taxi Unions campaign- social networking services. Instagram has democratized the ing against these apps. The two most popular apps Lyft and art of image making and has become the new polaroid of Uber have claimed to have received “Cease and Desist” the era. Its 130 mn.user base has shot some 16 bn. of pholetters from local authorities on frivolous grounds apparent- tographs till date. ly on the behest of taxi unions at some time in every city they operate in! The services do not share figures on how Companies like General Electric, Maersk Line, etc. have popular they are, but the opposition towards them suggest joined Instagram to reach out to their target customers. they pose a very real threat to “as we know it” Taxi service. Instagram has spawned an ecosystem of services such as photo-editing, printing and delivering of photos.It has plans App Category: Local Business to bring its own camera by 2014. Facebook acquired a majority stake in Instagram for $ 1 Bn after realizing its potenMost Popular:BookMyShow, Zomato, JustEat tial. BookMyShow allows customers to compare movies & rates Globally, mobile users are expected to outnumber desktop across cinema halls for booking tickets for Movies, Events, users by 2014 and the amount of time spent on mobile deTheatre and Sports. Zomato aids in searching for restaurants vices is growing: now an average of 82 minutes a day, which by location/cuisine/name. JustEat helps one to order food is more than twice the amount of time spent just two years online from a catalogue of restaurants. In short, they help ago. The mobile engagement being driven by Apps is here to mobile users discover local business. The discovery is made stay and will spawn many new business models. It’s imperauseful by using user’s location, preferences etc. tive that businesses make place for apps in their strategy.
References:
http://www.topapps.net/windows/how-mobile-apps-have-changed-the-world.html/ accessed on 24th September,2013
http://under30ceo.com/10-mobile-apps-that-will-change-the-world/ accessed on 23rdSeptember,2013
http://forbesindia.com/article/fourth-anniversary-special/naveen-tewari-we-want-to-change-the-worldof-advertising/35367/1 accessed on 24th September,2013
https://www.google.co.in/#q=mobile+apps+changing+the+world+/accessed on 23rdSeptember,2013
Pratibimb | February 2014 | 12
Interpreting the New Companies Act, 2013 Sarvesh Sharma, Vivek Cheruvapally NITIE
India has recently taken a much needed decision to come out with a new company law that is more appropriate to address modern day challenges. The Act which became a part of the legal statue on 29th August 2013 after it was signed by the President of India has ushered in a new era of corporate governance in the country. The best thing about the new Act is that it is simple, a breath of fresh air, with greater clarity of intent and purpose. Take for instance the fact that it replaces the old law with over 700 conflicting clauses with 470 short and crisp ones and all this in just 309 pages.
Having said that, the bill is not completely devoid of the confusion and haze that is characteristic of Indian legal framework. How practical will it be as a law that will govern all listed and unlisted companies in the country is a question whose answer rides on the meaningfulness of its implementation. The challenge is not to introduce new provisions, but to ensure proper implementation. In the ensuing paras, we have compiled a list of the main issues that will make or mar the success of the new law. Subjugation of minority shareholders? Under the new law, companies can buy out minority shareholders without any opposition from them. They will have no choice but to surrender their shares if the company wants to buy them out. For companies, this would save a lot of time in fighting lawsuits. The new Companies Act is certainly a boon to corporate India, as companies like Cadbury India Ltd, which have delisted long time back and want to become 100 per cent privately owned, but are still battling some minority shareholders, will be benefitted. For Cadbury, the legal battle for capital reduction has lingered on in the Mumbai High Court with the company and minority shareholders not being able to agree on a common buy-back price. Similarly, Bharti Telecom having a 43.5 per cent stake in Bharti Airtel, could be a beneficiary of the policy and come to a position to buy back five per cent of its shares held by minority shareholders, to become an entirely privately owned company. It is over a
Pratibimb | February 2014 | 13
decade since Bharti Telecom delisted from domestic bourses by offering shareholders Rs 96 per share. But the minority shareholders might not echo the same tunes as India Inc. The tax-free dividends that they were getting even after the company got itself delisted from stock exchanges will come to a halt as and when the companies decide to buy them out. Many critics of the new law argue that it favours listed multinational companies by letting them delist easily and become entirely private. Anyway, as per law, reduction of capital is a domestic affair to be decided by the majority. The older version of the Companies Act also leaves it to the company to decide for itself the extent and mode of reduction, bearing in mind that it takes care of the interest of creditors and minority shareholders, so as to ensure that it is fair and equitable. Pages from the West’s notebook Perhaps the best new provision from the shareholders’ point of view in the Companies Bill is granting them the right to file tort action and class action suits (known as PILs in Indian context), if they feel the company has committed a fraud. Had this provision been on the statute book in 2008 when Satyam’s Indian shareholders were duped, they could have filed a class action suit against the promoters, or even the Mahindra-run company that took over Satyam’s assets, as was done successfully by their peers in the US and UK where such provisions for class action suits already exist.
up about 1% of the 1.06 million companies registered with the MCA. Traditionally, such companies have had reporting requirements that are much more lenient than their listed peers. Off late, several transactions of private companies that contradicted with public interest directly or indirectly like coal block allotments, business interests of former BJP president Nitin Gadkari, real estate dealings of Robert Vadra with DLF—have made a case for this set of companies to put out more information.
The proposed law wants companies to give financial statements that consolidate the numbers of all their subsidiaries, including associates (at least 20% stake) and joint ventures. They are also required to put out their cash-flow statement, which delineates the extent of a company's cash coming from operations and external financing. Disclosures such as these will give a more holistic view of an entity's business interests. Already, capital market regulator Securities Exchange Board of India has norms in place to ensure that listed companies present consolidated accounts, up to an extent, and cash-flow statement as well. But, even they would have to make adjustments. End of Onion peeling? This proposal can significantly impact the way companies route their investments. In order to trace their end benefi-
Class action suits can now be filed before the National Company Law Tribunal.This clause ensures that Indian shareholders will not easily let off a fraudulent company in future, but the moot point is whether shareholders of government-owned companies can sue the government for squashing minority interests. In this context, it is worth recalling that Coal India has been sued by a minority shareholder (The Children’s Investment Fund) for following the government’s diktat to lower coal prices in 2012. Similarly, there is ample scope for class action suits against PSUs like ONGC, GAIL and Oil India which are subsidising losses in the oil marketing companies leading to under-recoveries. But banking companies are excluded from such action. Private affairs become less private
ciary, the new legislation proposes to restrict the number of layers of investment companies to two. There are umpteen instances where big, renowned companies have used this vacillant matrix to rob the investor. Consolidation of accounts and restricting the number of investment-holding companies to not more than two layers will improve corporate governance. Take Chintamani Agrotech for instance, where BJP president Nitin Gadkari served as director for a decade.Two companies—Jinbhuvish Power and Aarya Agrotech— owned a majority stake in Chintamani, but the ultimate beneficiaries of these firms could not be determined. The ownership of Jinbhuvish was traced to three layers, only to encounter new corporate entities at every level.
Information plays a vital role in good governance. With this wisdom in mind, the authors of the new bill intended to put more information in the public domain, especially about unlisted and privately-held companies, which make
Pratibimb | February 2014 | 14
But, unless better regulated, the ownership structures will remain opaque. The new rules don't yet specify the number of layers of subsidiaries the two investment-holding
companies can have, which leaves a window for companies to weave their web of deceit and circumvent the proposed changes. A company can still invest less than 50% in two companies or trusts, which could together hold 100% shares in a downstream company, and escape the requirement for consolidation. Corporate Social Responsibility or Corporate Social Recklessness Though, the Bill does not make 2 percent spending on CSR mandatory, but it comes close. It obligates companies to apportion the funds, form a committee, phrase a CSR policy, and spend the cash. If it doesn’t spend the money, it has to give a cogent reason in the annual report.
According to a Business Standard study in January, 457 of the 500 companies on the BSE 500 Index will have to provide for CSR, and depending on the average net profits for three preceding years, they will have to apportion Rs 6,751 crore in CSR spends. ONGC would have to spend around Rs 405 crore a year and Reliance Rs 377 crore, according to the newspaper.
can take advantage of the 'One Person Company’ (OPC) concept. Non-resident Indians or individuals who do not reside in India for over 182 days cannot incorporate an OPC. Also, a person cannot form more than five OPCs. This clause is aimed at ushering in the unorganized sector of proprietorship into the organized version of a private limited company. Many small and medium enterprises, doing business as sole proprietors, can be expected to enter into the corporate domain. The organized version of OPC will open up the avenues for more favorable banking facilities. It will facilitate the India entry of many foreign companies, which just need to appoint nominees for the sake of a minimum two members, when they form a wholly-owned subsidiary in India. This would also boost the flow of foreign funds into India.
But, as always, there are a few strings attached. A company under OPC will be taxed at 30%, which may be higher than the 10-30% for a business that is not incorporated. Other taxes, such as the minimum alternate tax and dividend distribution tax, may also be applicable and result in a higher incidence of taxation for the smaller sole ventures. Relationship with an expiry date
But, beyond inculcating a corporate conscience, the bill might fall short of effecting constructive change in the society. The real issue lies not in the percentage of funds apportioned for CSR, but that the bill makes no effort whatsoever to define which activities falls under CSR. Whether building schools for the underprivileged or building temples is a CSR activity is a question left unanswered- subject to companies’ own commitment, contemplation and interests.
Listed companies and companies belonging to prescribed class of companies will not appoint or re-appoint the auditor for more than two terms of five consecutive years if the auditor is an auditor firm or more than one term of five consecutive years if the auditor is an individual.
Ekla cholo re
All listed companies, particularly companies, which have long-term relationship with auditors, need to gear-up for rotation. This will help companies to work closely with proposed auditors and ensure compliance with strict independence requirements upfront.
One person company (OPC) is a new vehicle which was recognized by the government to allow new entrepreneurs and small businessmen to take advantage of corporate form of business. But, only natural-born citizens of India
On the downside though, a company will likely need to spend more time with the new auditor so as to familiarize the new auditor with their systems and processes. Global companies which have listed subsidiaries in India prefer
Pratibimb | February 2014 | 15
firms which are part of network, as their global auditors. This is expected to create some challenging situations. Latitude to expand The rules give private firms more room for expansion. The maximum number of shareholders in a private company is to be increased to 200, from 50. Now, they can afford to offer employee stock options to more employees and attract more investors without losing their private status. Similarly, the number of partners in a partnership firm has been increased from 20 to 100.
Conclusion So we see that all in all it is a good law with a few loose strings here and there. It is a move forward from the archaic statue of 1956 the need for whose successor was palpable for quite some time. If the ambiguous clauses find a more meaningful and clear implementation, the law would be destined to become one of the most potent forces in the hands of the national legal machinery which can harness it for the betterment of India Inc and the society as a whole for the times to come.
References
http://articles.economictimes.indiatimes.com/2013-01-08/news/36216663_1_corporate-governance-companies-bjp-president-nitin -gadkari
http://businesstoday.intoday.in/story/new-companies-bill-buyback-india-inc-investors/1/197720.html
http://www.deloitte.com/assets/Dcom-India/Local%20Assets/Documents/Companies%20bill/ASSOCHAM-Companies% 20Bill_web.pdf
http://indiacorplaw.blogspot.in/2013/09/companies-act-2013-additional.html
http://www.firstpost.com/business/companies-bill-here-are-the-pleasure-and-pain-points-1022453.html
http://www.google.com/imgres?safe=active&biw=1280&bih=692&tbm=isch&tbnid=LSreEsUTzB37NM:&imgrefurl=http:// www.firstpost.com/business/govt-not-the-lord-of-every-corporate-decision-on-csr-says-sachin-pilot1032477.html&docid=pVPemVRYtIKaEM&imgurl=http://s1.firstpost.in/wp-content/uploads/2013/08/sachinpilot1.jpg&w=380&h=285&ei=3KFyUtvYGIfU0QWSgIGQBQ&zoom=1&ved=1t:3588,r:11,s:0,i:114&iact=rc&page=1&tbnh=17 9&tbnw=226&start=0&ndsp=18&tx=857&ty=399
http://www.google.com/url?sa=i&source=images&cd=&cad=rja&docid=5aUNRR5_sM5HUM&tbnid=Bb3su88n9zQzM:&ved=&url=http%3A%2F%2Fwww2.truecorp.co.th%2Fen% 2Fcsr_policy.aspx&ei=R6JyUufUCNKa1AWbwYCgCw&psig=AFQjCNEBdyHOU4J5Tmbw4sgnup7eS6LDhA&ust=13833307 59208015
Pratibimb | February 2014 | 16
Paradigm shift in Automobile Manufacturing Vivek Acharya, Deepali Singhal NMIMS, Mumbai
“Handling auto waste is emerging as a big issue and the automotive industry should create a ‘disposal chain', similar to supply chain, so that vehicles that ultimately turn into scrap bundles can be effectively disposed of,” says Principal Scientific Advisor to the Government of India, R. Chidambaram.[1] He envisions this to happen in the future for Indian automobile sector. The automobile manufacturing industry in India is one of the largest in the world. Annually producing more than 3.9 million units in 2011[2], India's commercial vehicle and passenger car manufacturing industry is the sixth largest in the world. The pollution caused by manufacturing of one car can be imagined by the fact that it involves extraction of iron ore, bauxite, petroleum, copper, lead, and a variety of other raw material to process steel, aluminium, plastics, glass, rubber, etc. The material necessary to construct automobiles consumes generous amounts of resources, uses extravagant amounts of energy, and has sombre environmental repercussions. Auto waste can be classified as:
Raw material waste This constitutes raw material wasted from the process, work-in progress (WIP), bought out items, finished goods inventory and goods in transit.
Manufacturing aids waste This constitutes the material for indirect use in the manufacturing process, aids, maintenance spares, servicing spare parts, fuels for boilers, generators, etc. This category also constitutes the machine lubricants and coolants, aqueous and solvent cleaning systems, paint and plastics.
Office waste Office and warehousing wastes, such as paper, printer cartridges, pallets, packaging materials, organic wastes, wastes from food materials for employees, etc add to the waste generated. Paradigm Shift Within rapidly growing economies, the demand for resources and the disposal and handling of growing volumes of waste streams have started taking its toll on a constrained and already polluted environment. But, the last decade has witnessed a paradigm shift from waste management to waste prevention. Manufacturing companies are increasingly realizing that the way forward is through use of a green assembly line in a factory that does not belch out black smoke and create thousands of tons of landfill; not to mention that greener vehicles are in demand among the environmentally aware consumers. Automakers lately have been aware and are making attempts at improving their factories these days, with low waste plans, use of solar power, source reduction to reduce the amount of hazardous waste that is generated, and recycling of the waste that cannot be prevented within the production process.
Pratibimb | February 2014 | 17
It becomes all the more important when the cars themselves get cleaner--like the latest wave of electric and hybrid vehicles, Toyota Prius being the latest one on our home roads. Contribution to the Bottom Line For automakers, moving toward electric cars is a very expensive process, with expected payoffs and profits far into the future. But making production facilities greener also makes them more efficient and greater efficiency reduces costs. Manufacturing at large scale stands little chance of becoming truly green, but snowballing improvements could put the auto manufacturing industry right at the forefront of greener production. Sustainable growth is a primary goal for auto manufacturers. It not only helps build the brand image of car manufacturing, but most automakers are finding that it helps save capital and hence contributes to the bottom line. At Ford, they plan to cut their energy usage at manufacturing plants by 20 percent by 2016, and cut down their use of water and its wastage by 30 percent by 2015. Water savings for Ford in 2012 alone amounted to $3 million.[4] Recovery, Recycle, Reuse Automobile manufacturers today have moved from being manufacturers to assemblers with a vast majority of components being sourced from vendors at different tiers. This model has matured to a point today where 2nd tier vendors sometimes having minimal interaction with the OEM and Tier 1 Suppliers directly delivering sub-assembly. But any benefits drawn along this value chain only stands to benefit OEMs and vendors in the long run and this fact is being increasingly acknowledged by manufacturers globally. Among the variety of wastes generated by various players in the Automobile value chain many have the potential to be subjected to the “Recover-Reuse-Recycle” process to yield significant gains. Raw materials:
Aluminium body stamping trimmings can be directly recycled as they already have the necessary metallurgical components and properties.
Aluminium casting flash, machining chips and process rejections are all readily recyclable and fetch a good price.
Plastics trim processing waste, rubber processing waste and foam components are also easy to recycle. Manufacturing consumables:
Sand used in casting, coolants used in machining, paint primers and solvents are reusable and with minor capital investments, facilities can be developed for easy and extremely profitable reuse of these consumables.
Pratibimb | February 2014 | 18
Water with additives used as a coolant in forgings, sometimes in metallurgical processes and as a cleaning agent before surface treatment processes can be processed and reused continuously.
The plastic caps and fixtures to protect critical parts from dust and damage, also the packaging plastics and paper can be cleaned and reused. If damaged they can be easily recycled as well.
Office waste: Organic wastes in the form of paper, food products, canteen residues, plant trimmings can be used as feedstock in low capacity organic gasifiers developed by companies like GE. This technology recently developed by GE uses organic materials and using combustion in an oxygen deficient atmosphere to develop producer gas extremely efficiently to be fed into highly efficient gas turbines to generate power. Energy recovery at many places along the processing is possible with many efficient systems developed today for these purposes. These include:
Waste heat recovery in casting
Waste heat recovery in forging process
Waste heat recovery in heat treatment of components
Paint booth baking heat recovery
The recovered heat can be used for interior space heating in colder regions and also in case of feasible quantities can be used for processes like drying jet heating etc. Several of these possibilities have already been explored and successfully implemented in some companies. To site an example, Honda’s North American plants recently claimed to have reduced the proportion of manufacturing waste sent to landfills as just 0.5 to 1% of the total waste generated. Due to the initiative, waste sent to landfills reduced dramatically at Honda auto plants throughout North America--from 62.8 pounds in the fiscal year 2001, to an estimated 1.8 pounds of industrial waste per automobile produced in the fiscal year 2012[4]. Remaining waste product is reused, recycled or used for energy recovery. Focusing on minimization of waste helps organizations address high raw material costs, rising hazardous waste treatment and disposal charges, and pressure to increase the sustainability of their operations but whether ecologically sustainable business practices enhance the financial position of a company strongly influences their promotion and adoption. Future in Automotive design and Green manufacturing Mercedes has recently launched the new S-Class which has
been awarded the TUV Environmental certification. The breakthrough from Mercedes in its latest model of S class takes into account the environmental compatibility of the vehicle across its entire life cycle- from production through its long years of service to end-of-life recycling. This analysis far exceeds the legal requirements. TUV Nord awards vehicles like Mercedes S-class with the environment certificate based on variety of factors other than just emissions like impact of sourcing of materials on environment, recyclability of components, percentage of recycled materials used and overall lifecycle environmental impact. Concepts like Design for recovery are taking root in Europe where regulations encourage the manufacturers to design
and develop products with one or more of the following objectives in mind:
Easy selective removal of recyclable materials
Meeting a certain minimum recycle rate for materials used
Prohibition of harmful substances
Increased recycled material content Manufacturers in the future are more and more likely to work on these lines. This is acknowledgement of the fact that a manufacturer has the responsibility of not just the product in its inception and production but also throughout its lifecycle.
References:
Newspaper report titled “Expert focuses on auto waste, asks industry to evolve disposal chain” in The Hindu on February 28, 2012.
http://en.wikipedia.org/wiki/Automotive_industry_in_India
http://www.greencarreports.com/news/1086213_car-manufacturing-assembly-gets-greener-as-plants-cut-wasteenergy-use
http://www.honda.com/newsandviews/article.aspx?id=6126-en
Author Vivek Acharya’s 4.5 years long experience in manufacturing industry.
Pratibimb | February 2014 | 19
Join us on:
pratibimb@tapmi.edu.in Visit: http://www.tapmi.edu.in/student-life/pratibimb/overview/
Team Pratibimb Pratibimb | February 2014 | 20
TAPMI
P. B. No: 9, Manipal - 576104, Karnataka