What is FDI (Foreign Direct Investment) ?.

What is FDI (Foreign Direct Investment) ?

FDI or Foreign Direct Investment is the practice of international businesses investing in countries other than their home country. In recent months, there has been much debate over whether opening up of economies to foreign direct investment is good for developing countries.

Further, foreign direct investment is seen by many old timers as surrendering the sovereignty of the country though the younger generation views it as a blessing for the economy.

Whatever be the stance, it cannot be denied that with the global economy being integrated so tightly, developing countries have no choice but to allow foreign direct investment. However, they can have some restrictions on which sector to invest and how much profit can be repatriated.

Impact of Foreign Direct Investment on Developing Countries

Many developing countries do not have the necessary resources at their disposal to develop some sectors and hence, they permit foreign capital to invest in these sectors. Of course, they also ensure that sectors like defence and other sectors that have national security implications are kept off the list of sectors in which foreign direct investment is allowed. For many countries, opening up of their economies results in benefits since they need the dollars as well as because they might not have the expertise to commence productive activities in these sectors. Finally, foreign direct investment can be used to pay for expensive imports and encourage exports as well. After all, every developing country (except those with large oil reserves) needs to pay for its oil imports in dollars and hence foreign direct investment helps to earn precious dollars.

Downsides of Foreign Direct Investment on Developing Countries

There are many downsides to allowing Foreign Direct Investment into the developing countries. However, the developing countries benefit because of inflow of dollars and much needed capital, which is not available domestically, there is scope for outflow of dollars as well since the foreign companies typically repatriate a part or whole of their profits back to their home countries. This is the reason why developing countries must think twice before allowing blanket foreign direct investment. To circumvent this, many developing countries typically restrict foreign direct investment into sectors that badly need capital and where the developing country does not have expertise. Further, the fact that many developing countries have capital controls on the capital account (which is to restrict wholesale repatriation of both profits and investment) and relax the current count where only profits and that too a percentage of it is repatriated.

Closing Thoughts

The key point here is that no country can be isolated from the global economy in this day and age. Hence, it is in the interest of developing countries to allow foreign direct investment though some safeguards can be put in place as discussed above. Of course, the best path would be to not have a blanket ban on foreign investment nor to allow 100% foreign investment. In this respect, countries like India and China have showed the way on how to attract investment and at the same time not fall prey to the phenomenon of capital flight that happened to East Asian economies in 1998.

Is Foreign Investment Beneficial to the Developing Countries ?

Types of Foreign Investment and its Implications for Developing Countries

With the opening of the economies of the world, there has been a concomitant increase in the flow of investment from the west to the east. As capital from the west started flowing into the developing countries in search of better yields, these countries are experiencing the effects of such investment. While there are many benefits to the flow of foreign investment to the developing countries, there are downsides as well. Before delving into these effects, it would be useful to consider the categories of foreign investment that flow into the developing countries.

First, there is the FDI or the Foreign Direct Investment, which comprises the flow of capital into sectors that are opened up to foreign investment. This form of direct investment into these sectors usually is done through the setting up of plants, factories, and establishments either through joint ventures or through wholly owned subsidiaries.

The second form of foreign investment is the foreign institutional investors who invest in equity markets and bond markets of the developing countries as a policy of investment that is indirect. The crucial difference between these two types of foreign investment is that whereas FDI is longer term and less prone to capital flight in emergencies, the flow of foreign money into stock markets is what is known as “hot money” or money that can exit the country at short notice.

The Benefits of Foreign Investment

Hence, the fact that FDI is preferred more by developing countries become clear when one considers the deep and the longer-term nature of these flows. However, this does not mean that investments in equity and bond markets are not welcomed. This is because many developing countries run large current account deficits, which have to be financed with dollars. In other words, current account deficits are the difference between the imports and the exports that a country does and since many developing countries import more than they export, there needs to be a mechanism through which the deficit is financed. This is made possible by the investment in bonds and equities. On the other hand, FDI is suitable for generating jobs and creating conditions for future prosperity. Moreover, FDI comes with the added advantage of technology and knowledge transfer, which is beneficial to the developing countries. Therefore, as can be seen from this explanation, both FDI and hot money are attractive in terms of the usefulness they have to developing countries.

The Downsides of Foreign Investment

However, the downsides of these investments are that whenever there is a crisis like the recent economic crisis and the Asian financial crisis of 1997, there tends to be outward flows of foreign capital as panicky investors flee the developing countries markets lest they lose out in the process of the crisis eroding their investments. This is the key downside of foreign investment. Further, even FDI or capital investment can flee the developing countries if they have full capital account convertibility or the provision for the foreign companies to quickly convert their holdings in domestic currencies back to their home currency, which in many cases is the United States Dollar. Hence, the implications of FDI and Hot Money have to be clearly understood by policymakers before they commit themselves to opening up their economies. Indeed, as the experiences of China and India illustrate, the gradual opening up of the economy and the careful monitoring of flows of hot money are needed for developing countries to withstand currency shocks and liquidity crunches.

Closing Thoughts

Finally, in this globalized world, no country can be immune to the flow of foreign capital from the West. Hence, prudence and caution must be exercised before committing one’s economy to be open to foreign capital. If there are any lessons to be learnt from the Asian Financial crisis of 1990s, it is that foreign capital is as fickle as it is fun to have and hence, when the party is over, it would be the first to leave.

Benefits of Foreign Investment to Target Countries

Foreign Investment is more stable than fund inflows

In recent years, “hot money” or speculative capital has flown into many developing countries leading to their stock markets becoming overvalued. Foreign direct investment on the other had is more stable because the foreign businesses setup physical infrastructure as well as due to the fact that many developing countries do not have full convertibility of their currency on the capital account. In contrast, we are often treated to the spectacle of stock markets crashing because foreign funds have left the country in a hurry and have dumped the stocks.

Technology Transfer

Though this aspect was debated hotly in the 1990s when foreign businesses started to expand, technology transfer does take place. The point to be noted here is that technology transfer takes place more in joint ventures rather than subsidiaries as the local partners get the exposure in the former. This is one reason why many patent intensive multinationals set up subsidiaries instead of joint ventures. Of course, it is also the case that the developing countries have wizened and are insisting on technology transfer as a prerequisite to allow foreign businesses into their countries. Moreover, when developing countries import capital goods on a bulk scale, they also insist that the capacity to manufacture them be part of the agreement.

Exposure to Global Best Practices

A major benefit to the developing country is the exposure to global best practices that accompanies foreign investment. Because most of the multinationals that setup shop in developing countries are world-class companies, they bring with them global best practices in their chosen sectors, which can benefit the target countries and the workforce in them. For instance, because of the presence of so many multinationals in the software sector in India, the home-grown companies have adopted some of the HR practices of these multinationals leading to beneficial effects.

Employment Generation

While many debate the aspect of creating jobs by foreign businesses in the developing countries, one has to accept that foreign investment does create jobs both directly and indirectly. For instance, the direct employment generated by the foreign businesses supports the ecosystem around the factories and the plants wherein those employed by the foreign business live. This is because these employees need to eat, commute, and live apart from their working hours, which means that they need sustenance from local businesses that cater to them and their families. Moreover, suppliers, vendors, and local communities benefit because of the ecosystem support that factories of the foreign businesses engender in their locations.

Closing Thoughts

This article has primarily focused on the benefits of foreign investment to the developing countries. However, there are downsides as well and these would be discussed in subsequent articles. In conclusion, foreign investment benefits developing countries if the terms and conditions are favourable or even balanced between them and the foreign businesses. Of course, to reach such a stage where equal bargaining takes place, the developing countries must have a base from which they can negotiate on a position of strength.

Do Reforms drive International Businesses or International Businesses drive Reforms ?

Reforms driving International Businesses or Vice Versa?

It is debatable whether the reforms in emerging and developing markets drive the entry of international businesses into those markets or whether the international businesses with their strategies drive reforms in these markets. Of course, the bottom line requirement for any international business to enter the emerging markets is that the market economy in that country must be open to foreign investment. Hence, this is the b basic requirement that drives the entry of the international business. However, many emerging markets stop at this reform and do not make their economies friendly to foreign investors beyond a certain extent. In other words, once a country allows foreign businesses in some sectors, it does not automatically follow that it would open all the sectors to international businesses.

Factors to be taken into consideration

On the other hand, many international businesses once they gain entry into developing countries push for further liberalization of the economy in terms of investment friendly policies related to profit repatriation, increase in stake of the international business in the joint ventures, tax breaks, and convertibility of the local currency.

Indeed, as the experience of India shows, the country initially opened up some sectors to foreign investment, then stopped shy of full convertibility and is now at a stage where it is taking a gradated approach to opening up its economy. Further, the entry of the multinationals in India was accompanied by these companies putting pressure on the government to liberalize the economy further and hence, in the case of India it can be said that both aspects of the question posed in the topic are true.

The Case of China and India

However, the case of China is different. It went in for full liberalization and made its investment climate so friendly that multinationals just started to flock to the country. Further, the reforms in China were not half-hearted like in the case of India. Moreover, the Chinese government was free to implement reforms unlike India that is hamstrung by political considerations and the fact that policy paralysis has set in because of bad governance. Of course, this is not to say that one example is better than the other and vice versa because each country has its own set of factors in the political economy of development.

Some Recent Developments

Apart from these considerations and drivers, it needs to be mentioned that once the genie is out of the bottle, it is difficult to undo the reform process. This has been the experience of countries like the Maldives where once foreign investment was allowed by a particular government, it was not possible for the successor government to go back on its commitment. This is also the case with India where despite opposition to foreign investment, the broad policy framework is supportive of foreign investment.

Closing Thoughts

Finally, as mentioned earlier, the specifics of development are unique to each country because of historical, cultural, societal, and political factors apart from the baseline factor of economics. Hence, the approach to reforms and which aspect drives the other has to be done in a manner that suits the country.

Development of Services that Support International Business

Ecosystem of Services

Any business in order to function and grow needs an ecosystem of suppliers, vendors, and infrastructure that supports the operations of the business. For instance, if a certain company wants to setup its operations in a particular place, it needs land, roads, water and power supply, and vendors and suppliers to supply its raw materials or other factors of production, and most importantly, provision of basic services to its employees in the form of transport, shopping avenues, and schools and hospitals. Hence, there needs to be an entire ecosystem that supports the business and its operations. Likewise, international businesses too need services that support their operations and this includes quality housing and infrastructure for its employees including the expatriate ones. This means that if an international business has to setup shop in a particular country, it needs the existence of top quality infrastructure.

China and India: A Study in Contrast

If we take the examples of India and China in this regard, they present a study in contrast. Whereas China built modern airports, roads, and other infrastructure, India is lagging behind in providing even the most basic facilities to the international businesses. No wonder that foreign and western multinationals are more open to invest in China rather than in India. Moreover, the fact that India took its own time to construct international standard airports in its Metros barring Mumbai is a testament to the failure of the country to develop its basic infrastructure. What is more appalling is that the roads and ports are also yet to be developed fully. On the other hand, the services including quality English education and other services are better in India than in China. Of course, this is not to say that India cannot develop its infrastructure but rather the fact that because of policy paralysis, political gridlock, and bad governance, it has not been able to ramp up significantly.

The Next Breakout Nations and Fallen Stars

The implications of this are very clear. In order to attract foreign investment, countries must get their basic infrastructure right. The examples of the next Breakout Nations like Vietnam, Nigeria, and some countries in Latin America serves to illustrate the importance of getting the infrastructure sorted out. Moreover, as the competition for foreign investment accelerates and intensifies, the winners are those who can provide the ecosystem of services better, faster, and smoother. This is the lesson that the stars of yesterday like Thailand, Indonesia, and Russia have learnt as their economies collapsed because of skewed investment priorities that put more money into the hands of a few rather than the collective. Indeed, though the previous section criticized India for not improving its infrastructure, the fact that development has been more equitable than the other countries means that the societal services are more evenly balanced.

Closing Thoughts

Finally, the fact that along with capital development, human development needs to be improved as well is clear from the examples of South Korea, Taiwan, and Malaysia. These Asian Tigers have shown that given the right mix of infrastructure and services to support international businesses, they can match the development of the western nations.

The Role of Governments in Encouraging or Discouraging International Businesses

The Need to Encourage Foreign Investment

The previous articles have discussed how international businesses need supporting ecosystems and business friendly policies if they are to succeed in emerging markets. Of particular importance is the role of governments in deciding whether they would allow international businesses to setup their operations and encourage them to grow and succeed. Often, the governments of many countries do not have a choice but to welcome international businesses as they need the “hard cash” or the Dollars, as they are also known. For instance, the difference between exports and imports is known as the Current Account Deficit or CAD. Since many emerging markets (except China which has a positive CAD) have deficits that need to be financed with Dollars. Then, the governments can either borrow these Dollars at high rates or finance the deficit through FDI or Foreign Direct Investment and Equity flows into the stock markets from FIIs or Foreign Institutional Investors.

The Role of the Government

Apart from this, the domestic industry might not have the capabilities to succeed in a particular sector nor the expertise to develop that sector. Therefore, FDI becomes necessary for the growth of that sector. Moreover, opening up of the economy is needed for admission into the WTO or the World Trade Organization, which means that in order to export to other countries, emerging and developing market economies have to open up. These are some of the reasons why many governments in developing countries encourage foreign investment and allow international businesses to setup operations in their countries. However, whether the successive governments continue the same policies or not depends on a host of factors that include the ideological bent of the governments, the compulsions of politics, and the fact that foreign investment might not have succeeded in kick starting the economy as planned.

Process must be continuous and consensual

The key aspect here is that many governments of the emerging economies often welcome the international businesses with open arms because of the reasons listed above. However, midway through the process, some of them develop cold feet because of policy paralysis, and the factors listed above. It needs to be understood that allowing international businesses to enter into the emerging economies must be bipartisan meaning that there must be broad consensus on the issue from all stakeholders. Only then would the international businesses thrive in the emerging market economies. Further, the competition for foreign capital is so intense that any let up in the process adversely affects the economy and hence, the process must be continued and the international businesses given due encouragement.

Closing Thoughts

Finally, the examples of China, Brazil, South Africa, and Vietnam (which is still emerging) illustrate the need for consensus on opening up of the economies and following through the process. On the other hand, the examples of India and Russia are the other way around as these countries opened up their economies due to compulsions and then with open arms but failed to keep up the momentum. This means that the integration into the global economy would happen only when the reforms process is done wholeheartedly and without pauses or U-turns.

International Businesses and the Need to Harmonize Global Policies with Local Regulations

Globalization, Localization, and Globalization

It is a known facet of globalization that businesses that operate across the world have to contend with global policies and local regulations at the same time. In other words, these international businesses have to not only follow the global rules set by world trade bodies like the WTO (World Trade Organization), GATT (General Agreement on Tariffs and Trade) and the United Nations but also have to obey the local regulations in the countries in which they operate. This is sometimes referred to as the marriage of globalization and localization, which gives rise to the term Globalization that, was popularized by the famous cheerleader of globalization, Thomas Friedman. The implications of this adaptation are that more often than not, many international businesses have to comply with the quantum of profits that they can repatriate from the market in which they are operating. Repatriation refers to the practice of sending back the profits from the countries in which these international businesses to their home country. For instance, the global consumer products giants, Unilever and Proctor and Gamble have to ensure that the rules in the countries in which they operate have to be complied with during their business activities.

Some Real World Examples

This has led to these giant companies having separate subsidiaries in the Asian and African countries where they have their presence so as to ensure full compliance with the local regulations. The other aspect about international businesses is to do with the internal policies. For instance, many multinationals have global HR (Human Resource) policies that need to be followed across all units. However, the labour laws in the specific countries in which they operate have to be taken into account as well when they formulate policies for these units. For instance, in many Asian countries including China and India, there are strict labor laws that mandate the working hours for women and insist that the companies provide transportation in case of longer working hours. This means that the international businesses have to be cognizant of these laws and to comply with them as well. Indeed, many multinationals often complain that they are constrained by the local rules and regulations. The rejoinder from the local authorities is that these are the costs of doing business in that country.

Hiring and Firing of Workers and Local Labor Laws

Perhaps no aspect of international businesses and the need to suit themselves to local rules is more important than the hiring and firing of employees. In the west, it is common for companies to hire employees when there is an economic boom and fire them when the boom bursts. However, in many Asian countries, hiring and firing of workers has to conform to strict regulations and the companies must show evidence that the downsizing or the layoffs were warranted. The other side of the coin is that many western companies take advantage of the lax labor laws in countries like Bangladesh, Thailand, and Indonesia to setup what are known as “sweatshops” or manufacturing units that can operate at the terms of the western companies. This has drawn howls of protest from human rights activists who complain that the western companies are exploiting the workers in these countries taking advantage of the lax labor laws.

Closing Thoughts

Whichever side of the debate you are in, the fact remains that harmonizing the global rules and the local regulations is indeed a challenge for western companies seeking to do business in other parts of the world. Added to this is the fact that in Africa, many western companies have been accused of resource theft or exploitation of the mineral and oil wealth in those countries leading to severe resistance from the locals. Finally, we have touched upon many themes in this article and each of them is a separate topic for discussion as the dynamics between the global rules and the local regulations takes on interesting aspects of how multinationals operate.

What the New Staffing Rules in the United States mean for the Global IT Sector

The New Rules: What they mean

The recent decision of the United States government to restrict the entry of skilled IT professionals impacts the operations of the global IT sector, both of the domestic US based companies and the IT outsourcing industry across the world. The US government has mandated that firms in the country must hire IT professionals who come to the US on H1B Visas (a category of visas that caters to highly skilled professionals) only if the firm has met the requirements for 75 percent of its workforce being Americans. Along with other stipulations like restricting American companies from hiring too many guest or foreign workers and imposing taxes on American firms that ship jobs overseas, these rules are being viewed as an impediment to the free flow of people across borders. Since globalization and outsourcing are all about the unregulated movement of people and services across the global economy without regulatory constraints, these measures are widely seen as being protectionist in nature and if implemented seriously would be a setback to the domestic and foreign firms in the IT sector.

The US Economy and the H1B Professionals

This is because the US economy is highly dependent on the entry of the H1B professionals who form a sizeable component of the IT workforce in the country. Given the fact that every year nearly 65,000 H1B visas are granted and IT professionals garner a bulk of them, it would be difficult for the American IT firms to maintain their competitive advantage if such measures are implemented. Further, considering the fact that a majority of the H1B professionals are from Asian countries like China and India, the IT sector in these countries would be hit as well. This is the reason why the IT firms in India are protesting against this move, which they see as being detrimental to the concept of outsourcing. Of course, the fact that the ongoing recession has made countries protectionist and has made governments pander to local sentiments instead of taking a global view has to be considered as well. These moves fit in with the overall trend in the US where local jobs and regaining local workers’ trust has become paramount which when contrasted with the stand in the previous decade where foreign workers (especially the highly skilled professionals) were welcomed with open arms.

Reactions from US Firms

This is not to say that the domestic firms in the US are supportive of this move. Rather, the reactions to this move have been mixed with some firms like Google and Microsoft expressing apprehensions whereas other firms (the medium sized ones) welcoming the decision. This is in line with the behaviour of these firms where Google and Microsoft have benefited hugely because of the H1B professionals whereas smaller firms have often been at the receiving end. However, one senior executive of Microsoft hailed the move in a Senate hearing about possible violations of the H1B visa rules by Asian firms. The point here is that the Asian firms need to change their behaviour too as most of them fragrantly violate the provisions of the H1B and the B1 (the business visitor visa) rules. For instance, it is common for many Asian firms to send employees on B1 visas to work on shorter duration assignments though the rules explicitly prohibit B1 visa holders to work and only provide for business meetings and other forms of activities. Apart from this, the fact that some employees in the US have sued Indian IT behemoths like TCS and Infosys for possible malpractice as far as work permits are concerned ads to the clamour among business groups in the US wanting the government to take action.

Closing Thoughts

Finally, while it is a bit premature to say whether the impact of these rules on the IT outsourcing industry would be severe, the point needs to be made that all stakeholders must act responsibly instead of catering to narrow objectives and aims.

The Fortune 100 Corporations and the Awesome Power They Have

The Fortune 100 list of companies comprises of the top 100 corporations in the world in terms of size, revenues, and market capitalization. The list that is published annually gives a peek into the top corporations that run the global economy. Indeed, many commentators have stated that the top 10 corporations in the world are more powerful than many sovereign nations and their governments. This goes on to show how the global economy has produced business leaders and CEO’s who wield more power than the prime ministers and presidents of many countries. Of course, this does not mean that only corporate leaders call the shots, as there are others in the global economy like think tanks, ideators, and political personalities who are powerful. Just that the phenomenon of businesspersons being so incredibly powerful has become a characteristic of the times we live in.

Added to this is the fact that the top 20 corporations in the world control the global economy as can be seen from the patterns of holding and ownership that permeate the companies in the world.

Research and studies by Swiss researchers has shown that the top 20 companies in the world control the patterns of holding and ownership of virtually all the companies in the world. This is done through investment funds, front companies, private equity, and equity holdings in almost all the major companies of the world. These companies in turn, invest in the next tiers of companies leading to a matrix structure of ownership that ultimately ends at the top of the Fortune 100 heap. Hence, the title of this article about the awesome power that the top corporations have in the global economy.

The connection to international business is that these top corporations can dictate the speed and pace of globalization and hence entrepreneurs can well pay heed to the signals emanating from these corporations about the direction in which the global economy is headed. The implications for world control are also there as the top corporations can dictate the policies and the rules that nations and governments follow. Of course, with regards to corporate social responsibility, the top corporations have the power to influence the social and environmental initiatives. What is unfortunate is that there seems to be no agreement among the top business leaders as to the steps that need to be taken to assuage the social and environmental concerns.

Finally, the top corporations also have a say in the monetary and fiscal policies that countries follow and they virtually set the terms that many countries’ central banks follow. This means that for good or worse, the world has to live with this fact. The surprise factor in recent times has been the addition of corporations from China and India to the list of the powerbrokers and the movers and the shakers in the world of business. Indeed, if anything this trend is bound to introduce an element of democratization in the structure of the global economy.

The Future Arrived Yesterday for Businesses Worldwide

From Future Shock to Present Shock

The last decades of the previous millennium were characterized by “future shock” where the anticipation of the future to come absorbed businesses and policymakers alike. The current decade is characterized by what can be called “present shock” wherein the arrival of the long anticipated future has happened already. This means that the long awaited future has arrived yesterday to use the phrase, which means that businesses have to constantly be on the move to reap the benefits of the current rapid changes.

Present shock refers to a phenomenon wherein the merging of the past, present, and the future into the instantaneous moment means that more and more businesses are thinking of the immediate quarter instead of the longer term that all of us were accustomed to earlier. In other words, whereas in earlier decades, it was quite common to think about a horizon of decades, now businesses typically think of the next five years or the next decade at the maximum the case.

The Problem of Too Much at Too Fast

Moreover, this phenomenon is not restricted to businesses alone as the current generation thinks in terms of nanoseconds and seconds instead of minutes and hours. In other words, with the advent of Twitter, Facebook, and social media, we are all in the process of a continuous present where the past does not hold relevance and the future is something that is beyond one’s immediate concerns. This has implications for the business world as resource depletion, the ability to solve problems that require patience and time, and the fact that change happens in a glacial manner mean that we need to devote time to the tasks at hand instead of flitting from fad to fad and from trend to trend. No wonder many businesses and their employees are left with stressed out lives where the performance of the past does not guarantee success and where the longer-term future is too distant to behold.

The Digital Revolution and the Compression of Time

The point here is that because of the many converging trends of technology and the digital revolution, time itself is compressed and the companies that have done well in the past are replaced continuously with those who manage to grab the present and these in turn are replaced with those that are incrementally better than they are. With so much of change happening so fast, it becomes imperative for businesses to get a grip on themselves and the fast changing business landscape. This is at the core of the present crisis in the corporate world where even the most successful executives are unable to hold on to the ephemeral present.

Closing Thoughts

Finally, as mentioned earlier, we can only solve problems if we devote time and energy and in the fast-paced world where the present shock is hitting us hard, business leaders need to ensure that their business models stand the test of time and are not geared towards the immediate gratification that has become the hallmark of the present times. This is the sad reality of the present shock and we will be exploring this theme in detail in subsequent articles.

The Rise of Oligarchies and Monopolies and What this Means for Businesses

The Rise of Oligarchies and its Effect on Consumers

A noticeable phenomenon in the business world ever since the 1970s has been the rise of large corporations whose turnover sometimes exceeds that of the budgets of entire nations. These conglomerates or oligarchies are the direct result of neoliberal policies pursued in the West starting from the 1970s and in the other parts of the world starting from the late 1980s and early 1990s. These monopolies and oligarchies have become so powerful that their operations and size resemble that of entire nations and hence, there are several implications for business and society. First among those are the consequences that consumers must pay because of these oligarchies. For instance, if we take the case of Microsoft and its operations in the United States and the European Union, we find that by bundling its operating system along with the browsers and other software, Microsoft in effect is asking consumers to buy everything from them and only what they make. The result was the severe penalties imposed on the company in the EU because of anti-trust legislation and court rulings. Anti-trust refers to that aspect of the legislative actions that prohibits companies from forming monopolies where consumers are bereft of choice.

Some Downsides of Oligarchies

Talking about choices, it is clear that these oligarchies and monopolies force the consumers to buy their products since they dominate the market. Apart from this, the fact those monopolies create situations where consumers cannot fight back because of the immense clout that these companies have. Of course, this has been prevalent ever since the modern economy was founded in the early decades of the 20th century. For instance, the pioneer of the Assembly Line manufacturing method, Henry Ford, famously proclaimed that you can have any colour of the car as long as it is black. This shows the immense sway that oligarchies have on the markets in which they operate.

Further, oligarchies contribute to high prices, as they know that consumers would not have much of an option but to buy from them. Though efforts have been made all over the world to curb the power of the oligarchies, most nations have been unable to make headway simply because these oligarchies are too huge. For instance, in the US, the breaking up of the telecom behemoth, Bell Labs, into what has been called the splitting of Ma-Bell into baby Bells was one such action that contributed to the consumers’ and their rights. However, it was soon found that each of these split companies was by itself a mini monopoly. This shows the fact that as long as there exists a market system where free run is given to the corporations, monopolies and oligarchies would continue to flourish.

It is not all bad! Some Positive Effects of Oligarchies

Of course, this does not mean that there are only bad things about oligarchies. Among the positives is the fact that by having predominant position in the market, oligarchies can ensure that they reap the benefits of economies of scale and consequently are in a position to pass the benefits to the consumers. However, whether this happens in practice or not is left to the regulators and the governments concerned as they have an important role to play in not only forcing the oligarchies to conform to free and fair competition, but also to regulate them so that the negative aspects are not allowed to flourish. Further, oligarchies also contribute to the economy through their corporate social responsibility efforts and this can be seen in the example of the TATA group in India that is known as much for its products as for its good work done in the regions in which it operates.

Business Strategies for a World in Turmoil

Chaos, Complexity, and Change

The world is in turmoil. Whether it is the Eurozone debt crisis, the ongoing recession in the United States, the protests in the Arab world, the slowing down of the Chinese economy, or the political gridlock in India, business leaders are confronted with myriad challenges that demand out of the box thinking and non-linear approaches. For instance, business leaders of the present times need to think whether they want to take a longer-term view hoping that the conditions would improve over the next five years or do firefighting for the present problems, which calls for extremely short-term thinking. This dilemma coupled with the fact that the policy paralysis in many countries and social unrest in others makes the job of business leaders very difficult. Considering the fact that the attention span of today’s youth is reducing at an exponential rate, they need to capture the hearts and minds of the emerging consumers by short term targeting and at the same time plan for the future through deep rooted and slow moving changes that take time to yield results. The fact that legendary innovators like the late Steve Jobs and Bill Gates had a mix of short term and longer-term strategies means that the delicate balance between appealing to the short-term imperatives and the need for longer-term sustainability of their strategies has to be arrived at after careful consideration.

Attributes of Successful Strategies

Apart from this, business leaders in the contemporary organizations also have to have their pulse on the ground in terms of assessing whether they want to enter new markets, exit unprofitable ones, and grow potential successes. For this, they need to be able to read the situation on the ground in an astute and shrewd manner. The need to assess and understand the various kinds of risks involved ranging from political instability to social changes and unrest and strategize accordingly is another aspect. The fact that they have to take into account the dizzyingly connected global economy where events in a remote corner of the world have the potential to impact their operations is another aspect that the business strategists must take into consideration. Further, they need to contend with resource depletion and climate change, which are called high probability, high impact factors is another aspect, which calls for their attention.

Be Cosmopolitan in Outlook

The most important aspect that business leaders face is the balancing act between global outlook and local execution. It goes without saying that they must heed the needs of their employees in different locations around the world, which are determined, by local conditions and local factors. At the same time they need to be cosmopolitan in their outlook because the problems facing their businesses (some of which have been mentioned earlier) are global in nature. in other words, they must strategize based on how they perceive the business trends would move and at the same time must take into account the fact that rapid change and complexity of the business landscape makes each idea they have redundant and obsolete in no time. Therefore, innovation, global outlook, local execution, cosmopolitan attitude, shrewd understanding of risks, and the ability to be quick and agile are some of the attributes of the strategy that they must pursue.

Closing Thoughts

Finally, with so much of information overload and breathless change, business leaders and businesses must also not forget to invest time and resources on themselves. It is easy to get caught in the whirlwind of events and lose sight of the fact that to stay in the race, they must have stamina, and there is no point in expending all their energies on the present. The strategies must be consistent with their personal and organizational beliefs and be anchored in their core competencies. The need for speed and the demand for energy must be balanced in the global race for business.

The Mobile Wave is the Wave of the Future

The evolution of media and its interaction with business trends has gone through several waves. If it was Web 1.0 with the introduction of the internet, then it was Web 2.0 with the explosion of social media. Both these waves of innovation revolutionized the virtual world and gave new meanings to how we live, shop, and consume content online. While Web 1.0 went from a platform of communication exchange to a full-fledged commercial medium with online portals offering everything from groceries to guns, Web 2.0 revolutionized how we connect to each other and use social media to spread news and information around.

The latest innovation that is happening is the mobile wave and without calling it Web 3.0 since it is outside of the traditional realms of the internet, it can be said to be nothing less than a complete overhaul of the way in which we connect to others and view the world.

The mobile wave is the wave of the future and it has been helped greatly with the introduction of the Smartphones like Apple’s iPhone and Samsung’s Galaxy Series. These Smartphones that go beyond mere web enabling of the gadgets and instead, have the apps that are unique and specific to user requirements would change the way we consume content and shop using these Smartphones. Indeed, society and business are in for an overhaul as the mobile wave promises to take the virtual revolution one-step ahead by providing users with the ability to transact without having to use physical cash or even credit cards. The point here is that retailers like Starbucks in the United States and Airtel in India have already introduced the concept of mobile currency that enables the users of m-commerce to buy and sell goods and services without the need for credit card and other intermediaries.

Of course, currency cannot be eliminated completely and what this mobile commerce promises is that the intermediate layer between a shopper and the product that in Web 1.0 and Web 2.0 used to be the payment gateway would be eliminated by using a special form of credits that are linked to one’s bank account and other deposits of currency. With this, the mobile wave heralds a new era where in the future, by means of iris scanning and optical code recognition, consumers would be able to seamlessly move from retailers to transport to workplace environments where everything is connected by the emerging mobile technologies. Considering that the present generation uses Smartphones in a major way, it would not be too much into the future when we would see all of this happening. Indeed, as the experiences of the QRS code scanning and use by consumers for their shopping and information needs shows, the mobile technologies have the potential to remake the way businesses and consumers interact.

Finally, as with any technology or innovation, there is a bit of hype here. However, when one cuts through the jargon and the propaganda, one still gets the feeling that the potential for businesses and consumers is indeed huge with the mobile wave.

Innovation is the Game Changer for Businesses in these Times

How do you compete in the 21st century when competition from lower cost centres in manufacturing and services threaten to take away work from you? What do you do when newer products and newer offerings from both existing and new entrants threaten your bottom line? Finally, what do you do when business trends keep changing by the month leading to a rapid turnover in ideas, fads, and products? The answer to all these questions is that your firm ought to innovate to stay in contention. Before launching into a discussion on how firms innovate, let us consider the definition of innovation: it is defined as fresh thinking that creates something valuable for consumers.

In other words, any out of the box idea that helps in launching a new product or service that meets unmet needs of the consumers as well as provide solutions to existing problems and more importantly, create value in the process, can be called an innovative product or solution.

Firms like the global giant, 3M have perfected the art of innovation by investing in knowledge management processes and software. Firms like GE, Microsoft, and Apple have traditionally been among the top innovators in their respective fields. Of particular importance is Apple which under the guidance of its late legendary founder, Steve Jobs, revolutionized the way consumers use technology and media by pioneering several innovations related to personal computing and mobile devices. Around the world, energy companies like Suzlon and Shell have likewise introduced innovation to their processes thereby creating value to their consumers. Indeed, the way in which these energy giants branched out into alternative energy sources, renewable sources like solar and wind speaks volumes about their vision and mission, which is to provide the citizens of the world energy but in a manner that is sustainable and efficient.

Innovation is spurred by need, greed, and speed as a recent book on the topic puts it. The point here is that there is a need to stay competitive by the businesses in these turbulent times and hence innovation is the only way out. Further, the imperative to make money and turn in profits has meant that greed plays a prominent role in innovation. Finally, because of the shrinking times to market, businesses have to be quick and agile and innovate.

Apart from this, there is the concept of “Jugaad Innovation” which has traditionally been practiced in India. This concept essentially means that the outcome of any process or service would be achieved by a number of means, some of which are not traditional in the sense that management experts and textbooks do not write about them. However, this concept is catching on in many countries that are borrowing from the successes of Indian firms in innovating in all areas right from the wedding

How Innovation can be a Game Change for Businesses

Innovation as a Game Changer

Success for businesses in the 21st century depends on how well they innovate and move up the value chain. Innovation is the meeting of existing and unmet customer needs by providing solutions that enhance customer value. Innovation is derived from the Latin word innovates which means renew or to change. Innovation is all about using a novel or better technique or process to actualize solutions. Whereas invention refers to the aspect of the idea or the product, innovation refers to the method of actualizing it. The innovative approach allows businesses to approach new and existing problems from a fresh perspective and gives them the advantage of solving the problems in a better way than their competitors solve. Further, as Albert Einstein remarked, problems cannot be solved from the same consciousness from which they have been created. This means that there is a need for a fresh look at the problems that businesses and societies face and use newer methods to solve them. This is where the innovativeness of the businesses in deploying innovation is so important. The fact that businesses can reap the benefits of innovation is apparent from the way in which leading innovators like 3M and Google apart from Apple have flourished over the years.

Innovation, Invention and their uses

The other aspect about innovation is that it results in creation of value for the customers that is at the heart of all customer-focused strategies. The traditional emphasis on solving problems using a mechanistic fashion has resulted in many problems being unsolved because the 21st century business landscape is all about creative and inventive problem solving that utilizes nonlinear thinking and out of the box ideas to solve the problems. This is where innovation with its emphasis on a newer and better way of solving problems is so important for businesses. This is also the reason why innovation can become a game changer for businesses in the 21st century. By taking a fresh look at the problem and viewing it using new lens and a newer way of solving it, innovation can help businesses break free of the rut they are in and instead, rejuvenate and revitalize them. For instance, if we take the example of an automobile, consumers are no longer looking for a newer version of the automobile but something that can enhance the value that they derive from it.

Innovation in Emerging Markets

The third aspect about innovation is that it can become a game changer for businesses in emerging markets letting them bypass the lack of infrastructure and basic services. For instance, many developing countries lack basic facilities where people have to do with minimal comforts. However, the rapid spread of mobile technologies has meant that many emerging markets have surmounted the problems by leaping onto the innovation curve. The farmers, traders, and workers in these countries use their mobiles for everything ranging from communication to placing orders and tracking inventory apart from dealing directly with the consumers and eliminating the intermediaries. In this manner, innovation can help the developing countries solve intractable problems and let them jump onto the bandwagon of growth and success. The example cited here is of businesses like Bharti Telecom and Vodafone engaging with the Indian, Chinese, and African customers to provide them with mobile telephony. This lets the power shift to the consumers away from the intermediaries and the intermediaries by letting direct interactions between the farmers and the consumers, which facilitates the setting of price that is fair to both parties.

Concluding Remarks

Finally, businesses have a role to play in performing an enabling and empowering function in fostering innovation. This means that not only can innovation change the rules of the game for businesses; it can also fulfil the social responsibilities of businesses towards society and create a win-win situation for all stakeholders.