Description
Much of the institutional control on Capital still lies in the hands of Developed world entities although this is increasingly being challenged. These entities benefit out of ‘trading’ opportunities by turning the ‘management controls’ to those ‘managements’ who have stronger business case for ownership and well defined processes including evolved business models to raise enough credit to ‘buy’. Indian businesses, who have proven their worth in ‘global iron and steel sector’ and have several other smaller but well documented successes as well, may want to benefit from such opportunities. As far as global bankers are concerned, they would certainly benefit if there is more competition for ‘assets’ that are on ‘block’; or if more entities meet the borrowing risk threshold (provided they of course have transparent business procedures with mature business models); or if they can have more ‘trades’ including a role for their business models to enter emerging world markets with clients who can serve as important beachheads. It all puts a premium to globalized approach to business.
The Institutional Capital model and the Emerging
Economies
By: Amit Bhushan Date: 25
th
Aug
2014
The gloal mar!et is currently a"ash "ith li#uidity$ %ith the currency
in&ection continuing aleit at a lo"er pace than earlier in the de'eloped "orld
li!e the ()* +apan and Euro,one- and promise o. steady lo" interest rate
regime* the /usiness managers0 are actually ha'ing 1eld day competing "ith
in'estment an!ers to identi.y /'aluale0 uying opportunities "ithin
domestic economies as "ell as aroad$ The in'estment an!ers "ho dig in
their hands in large sta!es and o.ten /controlling sta!es0 in usinesses* may
ha'e to /cash out0 at some stage since their usinesses are ased on /'alue
unloc!ing0 and there.ore the looming /end0 o. /#uantitati'e easing0 in the ()
may ha'e signi1cance unless there are e'en stronger ets that Euro,one is
li!ely to come up "ith their o"n stronger 'ersion$ This is ecause at least
some o. these in'estment an!ers may "ant to get out "hen the mar!et is
still a"ash "ith li#uidity i$e$ to"ards the end o. easing* then "ait "hen
impact starts to suside and ecomes almost a must in scenarios "hen
interest rates egin to rise$ 2. course not all in'estment "ould e eha'ing
as predicted in this tumultuous period$ The an!s may "ant a competition
et"een healthy domestic usinesses to ri'al aggressi'e usinesses .rom
emerging mar!ets to cash out at decent 'aluations and o. course such
themes are eing uilt up especially in conte3t o. usinesses .rom China and
India 45 this may include other industriali,ed countries as "ell6$
The Chinese usinesses are etter placed ha'ing already in'ested in
gloali,ing themsel'es and e'ol'ing scale* processes and models that can e
deployed to "or! across operations* gloally$ They also ha'e resources to
ta!e the in'estment calls asis stronger alance sheets and etter placed in
terms o. maturity to .ul1ll gloal demand$ There.ore getting rands 5
technology alongside local operations in de'eloped mar!ets "or! to their
ad'antage and enhances their aility to scale .urther$ 7o"e'er* entry o.
Chinese competition can tilt the domestic mar!et dynamics in some o. the
de'eloped "orld countries to a large e3tent and may lead to large
retrenchments in the industry ecause it rings in Chinese cost and
standards in components and su8assemlies as "ell as /o98shore
manu.acturing:"or!ing model0 in part due to cultural:language issues- .or
"hich some competitors in de'eloped "orld may not e ready$ It there.ore
.aces political resistance$ The other area that opens up is that some o. these
"ea!er units in'est in o98shore units in competiti'e locations to de'elop
manu.acturing operations .or parts and su8assemlies so that they source
cheaply and ecome competiti'e$ This is a more acceptale solution ut
meets political resistance due to &o losses in'ol'ed at the lo"er strata "hich
tends to 'ote en8loc!$ ;ac! o. domestic &o creation a'enues !eeps pressure
uildup$ De'elopment o. tourism and ser'ices to some e3tent "ards o. the
pressure* ut the same is no longer enough to sustain the li!ely impact$
<ean"hile since there may still not e enough credit "orthy enterprises "ho
should e supported "ith their #uest to in'est aroad 4i$e$ ha'ing gloali,ed
operating aility to manage sustainaly and pro1taly6 so the option o.
1nancing /.oreign entities0 "ith a promising and politically digestile usiness
model may still e a promising idea pro'ided o. course these entities ha'e
some pro'en mettle to sustain such models$ The small and mid le'el
usinesses .rom India and other emerging mar!ets "ho ha'e pro'ed their
"orth in ha'ing a sustainale usiness model in India* need to in'est hea'ily
in e'ol'ing processes .or gloal operations i. they "ant to pro1t .rom such
opportunities$ At present* most such enterprises ha'e domestic orientation
"ith /small e3ports:imports "indo"0 "hich ta!es care o. any emerging trade
opportunities$ The consideration o. /e3ports:imports0 as a strategic option
including "ell de1ned processes .or /ac#uiring 'endor as "ell as customers0 is
almost lac!ing in most o. the )<Es 4especially .or gloali,ed models6$
There.ore considerations aout running gloally disursed operations and
ha'ing capailities to deal "ith such issues might simply e out o. #uestion$
This is e'en "hen most such units are plagued "ith high cost o. .unds
4compared to their gloal peers6 and gloal operations has a potential
ad'antage that can help them ring do"n the cost o. capital sustantially$
=etting hold o. pro'en technologies* rands as "ell as /mature 5 time8tested0
processes are some o. the other ad'antages$
<uch o. the institutional control on Capital still lies in the hands o. De'eloped
"orld entities although this is increasingly eing challenged$ These entities
ene1t out o. /trading0 opportunities y turning the /management controls0 to
those /managements0 "ho ha'e stronger usiness case .or o"nership and
"ell de1ned processes including e'ol'ed usiness models to raise enough
credit to /uy0$ Indian usinesses* "ho ha'e pro'en their "orth in /gloal iron
and steel sector0 and ha'e se'eral other smaller ut "ell documented
successes as "ell* may "ant to ene1t .rom such opportunities$ As .ar as
gloal an!ers are concerned* they "ould certainly ene1t i. there is more
competition .or /assets0 that are on /loc!0- or i. more entities meet the
orro"ing ris! threshold 4pro'ided they o. course ha'e transparent usiness
procedures "ith mature usiness models6- or i. they can ha'e more /trades0
including a role .or their usiness models to enter emerging "orld mar!ets
"ith clients "ho can ser'e as important eachheads$ It all puts a premium to
gloali,ed approach to usiness$
>or this to happen* the smaller and mid8si,ed usinesses "ill ha'e to mo'e
.rom transaction oriented approach to partnership oriented approach "ith
their customers as "ell as 'endors so that they e'ol'e a more sustained
usiness model$ They "ill need to in'est in ha'ing more integrated 1nancial
reporting processes so that the 'alues are cascaded seamlessly to in'estors
in transparent manner$ A supporti'e regulatory regime "hich puts a premium
on transparency in /reporting0 "ill actually go a long "ay since this "ould
ring greater trust"orthiness on the /numers0 and there.ore impro'e
crediility$ 7a'ing pro'en competiti'e ad'antage "ill e a dri'ing .orce that
"ill help shape up meeting the gloal re#uirements to raise the game?
doc_724736302.doc
Much of the institutional control on Capital still lies in the hands of Developed world entities although this is increasingly being challenged. These entities benefit out of ‘trading’ opportunities by turning the ‘management controls’ to those ‘managements’ who have stronger business case for ownership and well defined processes including evolved business models to raise enough credit to ‘buy’. Indian businesses, who have proven their worth in ‘global iron and steel sector’ and have several other smaller but well documented successes as well, may want to benefit from such opportunities. As far as global bankers are concerned, they would certainly benefit if there is more competition for ‘assets’ that are on ‘block’; or if more entities meet the borrowing risk threshold (provided they of course have transparent business procedures with mature business models); or if they can have more ‘trades’ including a role for their business models to enter emerging world markets with clients who can serve as important beachheads. It all puts a premium to globalized approach to business.
The Institutional Capital model and the Emerging
Economies
By: Amit Bhushan Date: 25
th
Aug
2014
The gloal mar!et is currently a"ash "ith li#uidity$ %ith the currency
in&ection continuing aleit at a lo"er pace than earlier in the de'eloped "orld
li!e the ()* +apan and Euro,one- and promise o. steady lo" interest rate
regime* the /usiness managers0 are actually ha'ing 1eld day competing "ith
in'estment an!ers to identi.y /'aluale0 uying opportunities "ithin
domestic economies as "ell as aroad$ The in'estment an!ers "ho dig in
their hands in large sta!es and o.ten /controlling sta!es0 in usinesses* may
ha'e to /cash out0 at some stage since their usinesses are ased on /'alue
unloc!ing0 and there.ore the looming /end0 o. /#uantitati'e easing0 in the ()
may ha'e signi1cance unless there are e'en stronger ets that Euro,one is
li!ely to come up "ith their o"n stronger 'ersion$ This is ecause at least
some o. these in'estment an!ers may "ant to get out "hen the mar!et is
still a"ash "ith li#uidity i$e$ to"ards the end o. easing* then "ait "hen
impact starts to suside and ecomes almost a must in scenarios "hen
interest rates egin to rise$ 2. course not all in'estment "ould e eha'ing
as predicted in this tumultuous period$ The an!s may "ant a competition
et"een healthy domestic usinesses to ri'al aggressi'e usinesses .rom
emerging mar!ets to cash out at decent 'aluations and o. course such
themes are eing uilt up especially in conte3t o. usinesses .rom China and
India 45 this may include other industriali,ed countries as "ell6$
The Chinese usinesses are etter placed ha'ing already in'ested in
gloali,ing themsel'es and e'ol'ing scale* processes and models that can e
deployed to "or! across operations* gloally$ They also ha'e resources to
ta!e the in'estment calls asis stronger alance sheets and etter placed in
terms o. maturity to .ul1ll gloal demand$ There.ore getting rands 5
technology alongside local operations in de'eloped mar!ets "or! to their
ad'antage and enhances their aility to scale .urther$ 7o"e'er* entry o.
Chinese competition can tilt the domestic mar!et dynamics in some o. the
de'eloped "orld countries to a large e3tent and may lead to large
retrenchments in the industry ecause it rings in Chinese cost and
standards in components and su8assemlies as "ell as /o98shore
manu.acturing:"or!ing model0 in part due to cultural:language issues- .or
"hich some competitors in de'eloped "orld may not e ready$ It there.ore
.aces political resistance$ The other area that opens up is that some o. these
"ea!er units in'est in o98shore units in competiti'e locations to de'elop
manu.acturing operations .or parts and su8assemlies so that they source
cheaply and ecome competiti'e$ This is a more acceptale solution ut
meets political resistance due to &o losses in'ol'ed at the lo"er strata "hich
tends to 'ote en8loc!$ ;ac! o. domestic &o creation a'enues !eeps pressure
uildup$ De'elopment o. tourism and ser'ices to some e3tent "ards o. the
pressure* ut the same is no longer enough to sustain the li!ely impact$
<ean"hile since there may still not e enough credit "orthy enterprises "ho
should e supported "ith their #uest to in'est aroad 4i$e$ ha'ing gloali,ed
operating aility to manage sustainaly and pro1taly6 so the option o.
1nancing /.oreign entities0 "ith a promising and politically digestile usiness
model may still e a promising idea pro'ided o. course these entities ha'e
some pro'en mettle to sustain such models$ The small and mid le'el
usinesses .rom India and other emerging mar!ets "ho ha'e pro'ed their
"orth in ha'ing a sustainale usiness model in India* need to in'est hea'ily
in e'ol'ing processes .or gloal operations i. they "ant to pro1t .rom such
opportunities$ At present* most such enterprises ha'e domestic orientation
"ith /small e3ports:imports "indo"0 "hich ta!es care o. any emerging trade
opportunities$ The consideration o. /e3ports:imports0 as a strategic option
including "ell de1ned processes .or /ac#uiring 'endor as "ell as customers0 is
almost lac!ing in most o. the )<Es 4especially .or gloali,ed models6$
There.ore considerations aout running gloally disursed operations and
ha'ing capailities to deal "ith such issues might simply e out o. #uestion$
This is e'en "hen most such units are plagued "ith high cost o. .unds
4compared to their gloal peers6 and gloal operations has a potential
ad'antage that can help them ring do"n the cost o. capital sustantially$
=etting hold o. pro'en technologies* rands as "ell as /mature 5 time8tested0
processes are some o. the other ad'antages$
<uch o. the institutional control on Capital still lies in the hands o. De'eloped
"orld entities although this is increasingly eing challenged$ These entities
ene1t out o. /trading0 opportunities y turning the /management controls0 to
those /managements0 "ho ha'e stronger usiness case .or o"nership and
"ell de1ned processes including e'ol'ed usiness models to raise enough
credit to /uy0$ Indian usinesses* "ho ha'e pro'en their "orth in /gloal iron
and steel sector0 and ha'e se'eral other smaller ut "ell documented
successes as "ell* may "ant to ene1t .rom such opportunities$ As .ar as
gloal an!ers are concerned* they "ould certainly ene1t i. there is more
competition .or /assets0 that are on /loc!0- or i. more entities meet the
orro"ing ris! threshold 4pro'ided they o. course ha'e transparent usiness
procedures "ith mature usiness models6- or i. they can ha'e more /trades0
including a role .or their usiness models to enter emerging "orld mar!ets
"ith clients "ho can ser'e as important eachheads$ It all puts a premium to
gloali,ed approach to usiness$
>or this to happen* the smaller and mid8si,ed usinesses "ill ha'e to mo'e
.rom transaction oriented approach to partnership oriented approach "ith
their customers as "ell as 'endors so that they e'ol'e a more sustained
usiness model$ They "ill need to in'est in ha'ing more integrated 1nancial
reporting processes so that the 'alues are cascaded seamlessly to in'estors
in transparent manner$ A supporti'e regulatory regime "hich puts a premium
on transparency in /reporting0 "ill actually go a long "ay since this "ould
ring greater trust"orthiness on the /numers0 and there.ore impro'e
crediility$ 7a'ing pro'en competiti'e ad'antage "ill e a dri'ing .orce that
"ill help shape up meeting the gloal re#uirements to raise the game?
doc_724736302.doc