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Business Economy Global

Comparative versus Collaborative Approach

Comparative versus Collaborative Approach

The nomenclature ‘Comparative Advantage’ has been used predominantly in international trade to signify an advantage to a nation over others with respect to manufacturing products and services easily and cheaply. The same concept is applied in the case of businesses or individuals that can achieve benefits out of the same.

However, when the concept is used by a nation to restrict free trade, under its umbrella by specifying another country taking advantage by introducing technology to hamper or cause damage to the importers as they use the products or services, it tends to digress from the more collaborative approach which is needed especially in current times globally. The country is said to have a more protectionist policy towards its inherent industry players thus boosting domestic manufacturing.   

Failing to gain a competitive edge in the international markets over those who enjoy a comparative one is another reason which is attributed to nations adopting a more uncooperative perspective.

Michael Porter in his Harvard Business Review article “Clusters and the New Economics of Competition” (Porter, 1998), stresses upon companies putting their input cost disadvantages to rest through global sourcing. For economic development, being a part of clusters makes more sense than refraining from one. Here he points towards location by providing it, an entirely new paradigm. Geographical locations internationally can be advantageous for the firms and for countries that participate in the conglomeration.

Sourcing inputs from those nations who have by those who haven’t can be an added advantage to all the players that form a part of the value chain and ultimately can provide the value proposition thereby to the customers in terms of cost and quality.  

References: Porter, 1998. https://hbr.org/1998/11/clusters-and-the-new-economics-of-competition

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Business Economy Startup

Asset Reconstruction Companies and the Five Forces

Asset Reconstruction Companies or ARC’s, primarily belong to the services sector in the Indian economy and are belong to the finance services industry. Their primary job is to buy back bad loans from banks, NBFC’s and other retail firms for a discounted price offered by these institutions and which can take the form of cash or security receipts. The purpose is to clean the lenders off their bad debts.

Here when the term ‘bad debts’, is used there is a clear distinction made between actual loan write- offs and technical loan write offs. The former cannot be bought back by the ARC’s simply because these debts aren’t alive as against the former that are merely written off in the books.

The next step for the ARC’s is recovery of the bad loans from the debtors which is done by taking over the assets which are hypothecated to the loan usually within a period of 60 days.

More on ARC’s can be found on the following link:

Function of Asset Reconstruction Companies & RBI Regulation for ARC

Akin to, many other firms in any industry, ARC’s also have an industry structure which plays a role in their functioning. Applying porter’s five forces to the ARC’s an industry analysis of the ARC’s could be done.

Pointing towards competition, there can emerge many more ARC’s in the future since the industry has many porous borders which can be easily percolated with differentiation. New entrants hence can turn out to be their future competitors. Banks can turn into competitors by providing discount, securities, and further credit period to the buyers by having a substitute product available to the buyers and by integrating forward thus converting their bad loans into recoverable ones in the future. All banks can form a consortium thus increasing the discount prices of the bad loans supplied by them to the ARC’s.

Sunk cost fallacy and the Interest Rates

The market valuation of a company reduces if the interest rates are higher given the present value of future returns and vice versa however, venture capitalist who believe in sunk cost fallacy will continue to support such a venture despite there being a stunted growth with respect to the company.

Considering this concept from the perspective of six hats thinking which is used for decision making, the example of a venture capitalist who has invested his money in a startup which is since 5 years trying to gain scales and during the time of investment the interest being high the present value of future cash flows then was low and the startup having not paid heed to the venture capitalist strategic advice can be taken.

From the white hat thinking the current data portrays that the interest rates have been rising with no scope for them to lower thus affecting the future cash flows and with the startup paying no attention towards scales there is a scope for the venture capitalist to move out his investment.

However, the VC ignores the warning signs thus circumventing from the red flags and conveniently avoiding from considering the black hat thinking strategy this focusing more from an emotional perspective of continuing with the startup thus adorning a red hat.

The VC continues with coming up with innovative and creative ideas for the startup to steer ahead towards its success by perceiving from the green hat thinking concept and focusses on the positive side of the entire scenario on the startup. Considering the blue hat if the VC adorns the same, he/she will be able to have knowledge that they are merely wasting their time and money on the startup and in the process enhancing their opportunity costs because the money after disinvestment could be utilized for more profitable investments. And on the current increased interest rates the risk of lower future cash flows could be segregated by adopting a diversified investment strategy into different markets and industries.

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Business Vision

Part 3 Envisioned Future….

Part 3 Envisioned Future….

It is something which can be set for the future and once achieved there can be another goal for the future that can be set. Purpose is something you cannot achieve because it is something you can only dream but goals can be achieved, and they change once the 1st goal gets achieved.

Goals need to be big, audacious, and hairy commonly known as BHAGS or Bee HAGs. The goals need to be creatively visualised. I was once coaching a client on what she wished to achieve in her career. She provided me with a lot of examples however when I asked her can you see yourself achieving these, she asked me what do you mean? I asked her to carry out a small exercise. I told her that whenever it was possible to imagine herself already having achieved those goals and, in that place, and situation and get habituated to that. She carried out her task religiously. Each time we would meet for a session I would ask her did you imagine yourself in the future as what you wish to be and where you wish to be, and she would provide me an affirmation. Our sessions got over after some time.

I met her recently and she proudly told me that she was currently where she wanted to be. It had taken her six years, but she mentioned it was worth it. I asked her again now what else do you wish to achieve, and she had her list ready. Those many years back when I had asked her whether after she achieves what she wanted to do what will be her next goal she had provided me a blank look stating that’s it what else should be there. That is when I had asked her to think as an exercise whether she would want to stop after achieving what she wanted or had something else in mind to achieve and ponder over that.

When we met for our session next, she had another list of goals which she had listed out and which she would achieve after the set of goals from her first list would get accomplished.

The goals not only have to be endless, but they must be scary enough for an individual to ponder over whether he/she will be able to achieve them. They must appear unachievable. Here I am reminded of the movie ‘Independence Day’. In the movie when the male protagonist tells his accomplice who would accompany him on the mission that they need to take the alien spaceship inside the mother ship of the aliens which was in space and upload a virus into it. This will entail in all the child spaceships into the earth’s stratosphere to be pulled down. His accomplice asks him a question ‘do you think you can achieve that bullshit that you just told me about?’. Yes, indeed the goals need to appear as something out of this world, completely unachievable for them to be only imagined but to be worked upon.  

A lot of organizations draft their vision, their goals that they wish to achieve but fail to imagine all about it. They fail to imagine it. This leads to them not being able to achieve them. 

References:

Collins J.C. & Porras J.I. “Building your company’s vision”, On Strategy, Harvard Business Review

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Business Vision

Envisioning your Future – Part 2

Part 2 Core Ideology….

What is it? It combines value and purpose. It cannot be confused with core competency. It guides and inspires. It is required to be lived with authenticity, discipline, and consistency.

Phew! In a nutshell it does mean many things.

Breaking down these many things one by one thus an explanation can be definitely provided for each one of them. So here goes….

It combines value and purpose….

Indeed. In the preceding part 1 value and purpose have been well illustrated. Continuing with the example of the teacher provided in part 1 “the teacher gets down to the level of the students while imparting knowledge”. If we perceive this statement carefully the value and the purpose which the teacher believes in is embedded in the statement.

The teacher being my client she was able to conceive and identify her value and purpose in the due course of the coaching sessions with her. She figured out her value was to expand her possibilities for the students and her purpose was to bring about a change in the life of her students. Thus, her core ideology was being guided by her purpose and value. She does not consider her competitors which would be other teachers in the school that she is professionally engaged with while comprehending her value and purpose. They are what she believes in and adheres to.

Here I am jumping to the last statement…

It is required to be lived with authenticity, discipline, and consistency…

The teacher does live with her ideology with authenticity, discipline and consistency since she has perennially ensured that she puts in additional efforts, thus expanding her possibilities to make the students comprehend the given topic. Hence here the teacher is authentic in her efforts because from within her heart she wants the students to comprehend what she teaches so that they can use it all through their life. She follows a discipline which is portrayed in case of each topic and is not limited to one topic alone. And finally she is consistent with her efforts thus adding discipline and authenticity to them.

Then I move onto the statement before the last one….

It guides and inspires…

In the teacher’s case her value and purpose guide her and inspire her consistently in taking the efforts that she does as described above in the explanation to the last statement. It can also be stated that her passion which is the value and the purpose that she lives, gets reflected through the efforts that she takes.    

And finally…

It cannot be confused with core competency…

The teacher’s core competency are the efforts that she takes to adhere to her core ideology. Her efforts are the variety of strategies that she adopts to consistently follow her ideals her core ideology. Core competency can change from time to time as per the demand of the situation. However, core ideology remains as is. It never changes.

Hence having a complete comprehension of the essence of core value and core purpose is important to know core ideology. This also means that core ideology never changes unlike core competencies which can change. The efforts the teacher takes may never ever get repeated or they may repeat time and again but her core ideology will remain static.

The moral is anything that changes cannot be core ideology….

Part 3 delves on Envisioned Future….

References: Collins J.C. & Porras J.I. “Building your company’s vision”, On Strategy, Harvard Business Review

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