World economy & Emerging markets

The world is seeing a sea change in the balance of economic power. There is a clear shift taking place towards the emerging economies. Why do we say that? Let's look at the facts.



The world GDP is about $ 49 trillion (at market exchange rates) & growing at 4% in 2007. U.S is still the biggest contributor with 25% of the global economy at $ 13.5 trillion followed by Japan & Germany. However, the emerging economies contribute to 30% of the world economy at market exchange rate. If we consider the purchasing-power parity(PPP), then the emerging economies constitute more than 50% of the world GDP. On a PPP basis China & India would occupy the second & fourth positions in world economy. As against a growth rate of 3% of U.S, China & India are having a tearaway growth of 11% & 9% respectively. The emerging economies contribute to 50% of the world GDP growth, 80% of the growth in oil demand is accounted for by them & hold 75% of the world foreign reserves.


The emerging economies have grown 35% in the last four years from 2003 & in the same period the emerging capital markets have grown four-fold compared to only 70% growth of S&P index in U.S. Brazil market has gone up by a whopping 900% during this period & China & India have gone up by more than 500%(source: JP Morgan). Some emerging markets are showing signs of "altitude sickness". As i write this, Shanghai markets have dropped 20% from this month high. However, there are still no indications for a bubble burst. Brazil is trading at a forward P/E(price/earning) of 12.5, China & India at about 22 as compared to the U.S at 15.



The low risk markets in emerging economies are Taiwan, South Korea, Malaysia, Thailand with their P/E ranging between 11.5-14. Also they have current account surplus. India on the other hand has shown a lot of exuberance in stock market due to high liquidity. But 85% of foreign investment in India have gone to debt or portfolio management this year. Most of this is in speculative stock markets. With a current account deficit of 2% to GDP, India is in a precarious position if there is a flight of foreign capital. Having said that, the Central bank is doing an excellent job by being proactive in steering the economy with high growth & moderate inflation. China appears less risky with a huge current account reserve & a break even budget balance/GDP.

That brings us to the often asked question of "decoupling". U.S is still a huge economy. But the pace at which China & India are growing & there is no reason why they won't in the future, it's a matter of time down the future when the markets will decouple from U.S. If after 20 years someone asks you " when will U.S decouple from China & India", don't be surprised.

Thanksgiving day- the history & tradition

Thanksgiving day is generally celebrated in Canada & States The history of U.S thanksgiving dates back to 1621 with the settlers in Plymouth colony,Massachusetts. The settlers would have found the life well nigh impossible had it not been for the native Indians who taught them hunting & farming. To celebrate the good harvest season, the settlers thanked God & invited the native Indians for dinner. Later on, through proclamation by the President, every fourth Thursday of November is celebrated as Thanksgiving day in States. In Canada, it is the second Monday of October. Thanksgiving is a four day holiday period in States.



Both Thanksgiving & Christmas are celebrated with close family & friends. But unlike Christmas,people don't exchange any presents during Thanksgiving. Visiting families might bring some wine or dessert pie. Just before dinner, the family members stand in a circle holding hands & the the head of the host family says "the Grace prayer" thanking God.

Traditional Thanksgiving dinner always implies roast turkey, cranberry sauce, stuffing,mashed potatoes.gravy,sweet potatoes,turnip,corn & a pecan pie or pumpkin pie & a good wine. The dinner is always accompanied with abundant family news, stories & lots of fun & laughter. More than 45 million turkeys find themselves from the farmland to the dinner table during Thanksiving day in States & hence its also called a turkey day.

Thanksgiving day also marks the beginning of the "holiday season" which lasts up to new year. The day after the thanksgiving day is called the "Black Friday". it is so named because the retail shops books of account generally turns from red to black(from loss to profit). The day sees huge discount sales offered by retailers & the stores open as early as 4 A.M. Invariably, there is a mad rush to avail of these fabulous price. The retail stores make 50% of their yearly profits during the holiday season. No wonder Retail stores look forward to the holiday season with bated breath. Initial survey indications for this year's Black Friday sales have been positive. The estimate is a 4% sales growth during this holiday season. Should this not come through, the American economy will be in big trouble as consumer spending accounts for 70% of the economy of U.S.

Global warming

One of the main issues that has caught the attention of the scientists & the goverments across the world is Global warming. Global warming refers to the increase in the average temperature of the Earth's near-surface air and oceans in recent decades and its projected continuation.


Scientists have been debating for ages whether the climatic changes have been caused by the change in sun's light due to earth's orbital eccentricity or by human activity throwing up more GHG(greenhouse gas). But in this process we miss one salient point. We can't change things over which we have no control. So, if global warming is partially caused by changes in solar energy, so be it. We can't do a damn about it. Lets focus on what we can do to minimise GHG emissions.


The Kyoto talks gave a roadmap as to what we should do till 2012. But U.S- the biggest emmiter of GHG(2.79 billion tonnes per year) though a signatory, did not ratify. The next round of talks is going to begin in Bali(Indonesia) next month to try & bring in a consensus as to what we should do till 2050. Thankfully, U.S has agreed to participate in the discussions as there is a tremendous internal pressure building up to recoganize the perils of GHG emissions due to human activity. The IPCC( Intergovernmental panel for climatic changes) has now realized that the Global warming is most likely caused by human activity & it requires urgent steps & global action to ward off possible devastation.


How can we contribute towards this? The answer is twofold. What we can do as individuals as citizens of the world & what global industries can do.


As individuals, we can start using energy efficient lamps like CFL(compact fluorescent lamps) instead of the standard incandescent bulbs.Use energy efficient household electrical items.Switch off lights,TV,Computer when not needed. car pooling is an effective way of reducing emissions. Do not use automobiles when you can walk the distance. ( it's a good exercise & would make us healthy). Say "no" to cutting of trees & plant trees instead.

Industries should quadrpule investments in technologies for better emmission control systems. Research should be speeded up for renewable energy on a commercial scale.Technology should focus on "carbon capture & storage" instead of emission.

Goverments across the world should take hard decisions to put a cap & agree on reduction of carbon emission by 50-80% over a 25 year period for developed nations & 30-40 years for developing countries.It is decisions like this which will spur creativity for alternate sources of energy.

Can we prevent global warming if we do all this? I don't know. But atleast we would have put in efforts to be in the right track.

Big idea

The other day i was watching this show on CNBC called the "Big Idea". It was so amazing to see how creative ideas can bring in millions of dollars. One idea was the "super fit ring". We all know how every now & then we have great difficulties removing the ring from the finger. The knuckle acts as a bottleneck. This person designed a split ring whereby one part of the ring slips into the groove in the other part seamlessly. The ring splits open when u press on the groove & can easily be removed from the finger. Simple idea but very effective.


The more i think about it, it becomes clear that ideas spring to persons who have a probing mind. There are everyday things happening around us & most of us accept it & adjust to it even if it causes hardship. There are some who question status-quo & these are the people who get new ideas. Whether it be a product,service,process,or a safety aspect , we need to challenge our mind to see how it can be improved . Once we add value, the customer is prepared to pay a better price. But to add value, we must tell ourselves " there must be a better way of doing it"

Leadership

There are many books & articles written about leaders & leadership.But what exactly is leadership? In simple terms, it's the strong conviction of one's "vision & dream" & how they go about achieving this.

There are several attributes to leadership qualities but i am going to discuss on certain critical issues here.

1) Shared vision:

This probably is the most important requirement.Vision kept unto oneself is only a dream & a personal agenda. It's vital that it should be shared with your people & modified suitably with inputs from them.This gives a sense of belonging to your people. The vision should always be "BIG" & stretched but should be achievable. Once the vision & goal has been bought by the people, then the strategies & milestones should be put in place for monitoring & course corection. Value systems should be clearly defined & understood by all. Any deviation from this should be a no-no.

2) Selecting your team:

In any group you will find high fliers, average performers & cribbers. Having different views on issues is a good & healthy sign . But people who put cold water on any new suggestions without proposing alternate methods are the most dangerous.They are like weeds who will spread virus among the group & derail the project.It is absolutely necessary to spot them early & weed them out for the success of the vision.

3) Clear communication:

Creating a structure & an environment for two way communication is paramount. Levels of hierarchy should be minimal paving the way for faster communication. The leader's communication should be clear,unambiguous & he/she should be a good listener as this forms part of the communication loop.

The leader should lead by example & "walk the talk". This gives them the credibility which is very essential .

4) Stand by the people:

Never let your people down in public. People do make mistakes. Accept the responsibility. But when there is success, reward & recoganize the individual or group in public. You will be surprised how it improves the morale of the group exponentially.It also enhances your credibility as a leader. Small things like this will make your people "charged" towards achieving the common goal.

The leader should create & provide an environment where the "fear of failure" syndrome is absent. As long as people make a sincere & honest effort to the common goal,mistakes & failures should be taken as a learning process.

5) Be proactive:

This is a quality which is more easily said than done but makes the leader stand apart from others. It requires a lot of hard work,attention to detail,commitment & an untiring passion for learning. Leaders should not only know whats happening around them & the world but should also decipher what is most likely to happen in the future-be it about the competition,products/services or the geo-political scenario-. Strategies should be put in place based on the likely future changes. Ofcourse, he/she should be flexible enough to modify strategies on any unforseen events. But the leader should see through & make things happen & not generally react to the unfolding of events .This is what is leadership innovation & creativity. This quality is what makes people look upto the leader.

Having said that learning is important,it is also eqully important to unlearn bad practices. Unlearning is an important aspect of individual & organizational growth.

There are several other attributes to leadership like courage,networking, delegation, compassion etc... It's a bonus if one has all this. But it's my belief that if one doesnt have the five attributes i have discussed, one can never become a good leader.

Impressions on U.S(contd)

In my last blog i had discussed the positives of this great country. Total freedom of speech & actions brings forth transparency but when not moderated triggers certain negative aspects.



This country is big-the vastness of the land,the size of the cars,huge supermarkets & even the physical size of the people-. When you have a "land of plenty", everything is easily available. The huge portions of food they serve in the restaurants will have to be seen to be believed & more often than not people tend to waste it. Food being wasted is no "big deal" here. Considering the fact that there are millions of people around the world who don't even get a square meal a day, this wastage is condemnable. But an average American has little or no knowledge of the happenings in the world surrounding them. They think America is the world. This Govt probably is the biggest aid provider to the underprivileged countries but the common man here clearly has minimal knowledge of the world at large & hence the lack of appreciation.



The "Gun culture" is another evil which is prevalent in the system. It is so easy for an individual to have a gun licence. In some states its not even necessary to have a licence.Students in schools have access to guns & no wonder we hear so many cases of shootouts in schools & colleges. Gun culture is a clear case of extreme individual freedom .



Statistics shows that 50% of the present day marriages in this country end up in divorce.Marriage by definition involves two people. Trust, mutual adjustment & a give and take attitude is the edifice for the longevity of any successful marriage. Obviously the high divorce rate is indicative of the intolerance for these aspects. Economic & financial independence of individuals might well be one of the reasons which promotes an attitude for a lesser need to adjust.



Sexual promiscuity is another danger lurking. There are laws in some states where schools can give birth control pills to students as young as 11 years. Can you believe that? the worst thing is that the parents need not be informed about this as it is privy to the teacher & student.This must be the height of individual freedom & independence. There is no one more interested in the child than the parents & privacy prevents them from knowing about this. I don't know what is the thought process that has gone through before passing such laws.

Impressions on U.S(contd)

In my first blog, i had mentioned that i would discuss about the pros & cons of U.S. Lets now look at the positives of this country.


The first thing that meets the eye when you travel across the States is the beautiful highways & interstates. It makes driving a pleasure. Clear road signs, coupled with a GPS system makes directions very simple & easy. Driving is very disciplined & "right of way" is always for the pedestrians.


Every town & city is well planned. The town is divided into quadrants & grids & every grid is provided with all infrastructure like schools,hospitals,restaurants,parks,supermarkets etc..


People are the "change agents" & what we see of this country was brought about by them.The average American has tremendous amount of pride about their country.They are highly self confident & fear of failure is minimal. It is this quality coupled with the spirit of independence that has propelled their creativity & entrepreneurial qualities.

Impressions on U.S

Having made several trips to U.S in the last 30 years, i believe i have a reasonable insight about this great country & its people. Coming as it is from an outsider it should give a "birds eye view".

Culturally its still a young country.250 years is by no means an old civilization. But that in itself could well be the country's strength. People are not bogged down by age old traditions or dogma.

As in any culture & country, there are pros & cons. In my next few blogs i shall share my views on the positives,negatives,etc..