Video game market to reach $82 billion

The Economist reports that the video game market was $56 billion last year, and will reach $82 billion by 2015.

English: Arcade Video Game

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The current market has grown by 60% in the past 5 years, and is now twice the size of the music industry and is quickly catching up with the film industry. Much of this growth is due to emerging markets in China and demographic shifts in the US.

The biggest market is America, whose consumers this year are expected to spend $14.1 billion on games, mostly on the console variety.

Read more at Daily chart: Shoot ‘em up | The Economist.

India’s economic slowdown?

Several economic indicators are turning red for India. Instead of the predicted double digits, GDP growth is expected to languish in the 5-6% range in the present and coming years. The rupee is at a life time low and the stock market is the worst performing index among developing nations. Several factors are blame, including high interest rates (which are necessary to control runaway inflation of 9-10%) and a governance deficit (no major economic reforms have been passed in the past 6 years).

English: topographic map of India

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Other underlying structural problems in the economy include a banking system crippled by bad debts, and stubborn current account, trade and fiscal deficits.

India’s economy can seem like a bicycle—it needs to keep moving fast to be stable. Once conviction in the destination falters, companies curb investment and hope turns to fear that the country’s problems may be intractable.

It seems that inflation is the root cause of several of these problems – much of food inflation is caused by the country’s creaking infrastructure that leads to severe waste and fluctuations in commodity and food prices. This puts the recent reversal of a decision to allow international organized retail players into India, into greater focus. Scholars have long argued that FDI in the retail sector will help develop the necessary supply chains and cold storage infrastructure that a 21st century economy needs. It will also help to drive down food prices, benefiting consumers and the country’s growth prospects in the long run.

Read more at India’s economy: Slip-sliding away | The Economist.

Another benefit of diasporas – home country web traffic

In a series of latest articles, The Economist lists the size, spread and economic benefits of diaspora.

There are now 215m first-generation migrants around the world: that’s 3% of the world’s population. If they were a nation, it would be a little larger than Brazil. There are more Chinese people living outside China than there are French people in France. Some 22m Indians are scattered all over the globe.

Beyond obvious benefits, such as remittances, diasporas also increase the flow of information and ideas, and enable ease of international business, thereby driving innovation and entrepreneurship in their home countries. (Read more at The world economy: The magic of diasporas | The Economist and Diasporas: Mapping migration | The Economist.)

Another benefit of diasporas, which has come to light in a report by comScore, is home country web traffic. Communication technologies and online news & entertainment channels play key roles in fostering the ties between diasporas and their home countries. This is reflected in the fact that 30 to 50% of traffic for most of the big Indian web properties originate from outside India. For example, 36% of Times of India’s 12.3 million visitors in September 2011, were from outside the country. 52% of ESPNCricInfo‘s nearly 8 million visitors and 57% of Bharatmovies 2.7 million visitors, did not live in India. These numbers have implications for content developers and online advertisers.

This map (from The Economist), which lists the world’s top 20 destinations for Chinese and Indian migrants, may help in identifying the major sources of web traffic for the top Indian websites.

Image via The Economist

Read more at India’s Local News Destinations See Visitors from Outside of the Country Account for a Significant Share of their Global Audience – comScore, Inc.

India’s economic landscape

A representation of the Lion Capital of Ashoka...

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The Economist‘s special report on India Inc. states that unlike in western economies, successful Indian firms are predominantly government owned or family owned businesses. The conglomerate is the business model of choice and this empire building is reflective of the 1900’s economic landscape of the US. An Infosys is an exception, rather than the norm.

All this might seem a recipe for disaster. In Korea and Japan closely held and widely spread firms became slothful. So far India Inc has been different: its big business houses compete and innovate fiercely. Their returns on capital are neither pathetic nor outrageous and most are prepared to invest billions of dollars in the risky capital projects that India needs so badly.

In the past decade Indian business has not been on a journey towards someone else’s economic model, whether Chinese, European or American. It has not been growing out of an immature phase, or shaking off a simpler way of doing things. Instead it seems to have established its own equilibrium—what might be called “capindialism”—in which profits are controlled not by institutional shareholders but mainly by the state, or by entrepreneurs and their descendants. Outside the state firms, the fiddly conglomerate is the favoured form of organisation.

The special report blames India’s soft state for being the reason firms choose to grow into conglomerate structures. It claims that ‘horizontal and vertical diversification’ of professionally managed firms is proof of this thesis.

Yet the best explanation is India’s soft state. Courts can take years to make their minds up, so contracts are hard to enforce. Infrastructure is often poor, supply chains tricky, red tape a hazard, and markets for people, materials and finished goods unreliable. Tarun Khanna and Krishna Palepu of Harvard Business School coined this idea in a 1997 paper. In these circumstances it makes sense to do things yourself.

Indian Buffet

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This cause and effect reasoning seems to be rather simplistic for the complicated Indian Thali . It ignores the unique role of the joint family in Indian society. It also ignores cultural and legal norms that encourage dynastic progression of company ownership and wealth. This ownership structure also promotes a more long-term view by Indian business houses. Unlike institutionalized firms, where bosses have to meet quarter to quarter performance measures, family owned businesses are more focused on creating wealth in the long-term, for the next generation. Thus they invest in frugal products (which, according to the report, do not generate high profits), which is a means to hook the millions of potential middle-class customers of tomorrow.

Overall, though the analysis comes across at times as bit contrived (it works towards the underlying assumption that one size fits all – the institutionalized business models that are successful in the west are the best) and at other times a bit naïve (for example, the report mixes up vertical integration, related diversification and unrelated diversification), the report is well written and worth a read. It raises several key questions and invigorates critical thinking on the state of India’s economic landscape.

If India is to finish the long journey to superpower status that has been plotted for it by many forecasters, it will have to get its act together on things like infrastructure, efficient land allocation, education, bond markets, reliable supply chains and the enforcement of contracts. Yet if it manages to make progress in these areas, the rationale for sprawling big business groups—sometimes almost like mini-states in their own right, as substitutes for the real thing—will gradually disappear. A big danger, then, to Indian business’s current way of doing things is long-term economic success. It would make today’s approach to organising firms redundant.

Read more at Business in India: Building India Inc | The EconomistAdventures in capitalism | The EconomistFamily firms: The Bollygarchs’ magic mix | The Economist, and The Indian miracle and the future: Rolls-Royces and pot-holes | The Economist.

Challenges for middle ranked business schools

The Economist says that middle level business schools in developed economies are finding the going tough as prospective students question their value proposition (starting salary divided by fees). The fees at these schools are increasing due to increases in wages and infrastructure investments. To offset decreasing domestic enrollment, these school have to undertake high costs of recruiting students from emerging economies – which further inflates their cost structures. To continue to attract emerging economy students in the future, these schools will have to consider changes to their curriculum to reflect different realities in different parts of the world.

The Birmingham Business School

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Asian business schools still have a long way to grow. The Economist currently ranks just eight of them among the world’s top 100. Of these, only one, the China Europe International Business School, can be found on mainland China; it has campuses in Beijing, Shanghai and Shenzhen. India, too, has only one: the Indian Institute of Management in Ahmedabad (IIM-A).

In time, though, Asian and other emerging-economy business schools will be able to attack the incumbents on a second front: their curriculums.

Read more at Business education: Trouble in the middle | The Economist.

India’s growing exports: Not the full story

The Economist reports that as a percentage of GDP, India’s exports of goods and services have increased from 12% to nearly 25% over the past decade. However, this does not tell the full story. A quick look at the numbers shared by  India’s Department of Commerce shows that India’s trade deficit has grown in sync with the increasing exports.

Year                                  2006-2007   2007-2008   2008-2009   2009-2010   2010-2011

India’s Trade Balance   -59,321.19   -88,521.83   -118,400.95   -109,621.45   -118,633.24

in million USD

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This may imply that India’s economy is getting more integrated with the world economy. Absolute as well as relative increases in exports are going in hand in with equal or greater increases in imports. The bottom line – consumption driven growth.

Read more at India’s economy: Not just rubies and polyester shirts | The Economist.

Business Education – Different Strokes for Different Folks?

The Economist tells the story of Russia’s leading international business school, which prepares its students to ‘get things done’ in ‘difficult economies’, like the BRICs.

When compared with most schools that are introducing compulsory courses on Ethics, this seems to be more Durmstrang than Hogwarts.

However, ground realities in ‘difficult economies’ are quite different from their more developed counterparts – institutionalized corruption, infrastructure constraints, slothful bureaucracy and the constant need to do more with less (money, time, people). Thus the troubling shade of grey.

Read more at Which MBA? | School of the dark arts.

Predicting when China’s economy will become numero uno

The Economist has shared a great interactive chart using which one can predict when the Chinese economy will overtake the US. As per the IMF, this will occur in 2016 on purchasing power parity basis. Using the relative growth rates of the two economies, the difference in inflation (the GDP deflator) and the appreciation of the Yuan against the dollar, the Economist’s tool gives a target of 2018.

Read more at Becoming number one | The Economist.

 

The interactive chart is at

http://media.economist.com/sites/default/files/media/2010InfoG/Interactive/China_US_GDP_Dec18/main.swf

India’s industrial outpost: Tata for now | The Economist

TACO Faurecia Design Center

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A mutually beneficial situation – the largest employer in the UK, Tata brings animal spirits and resources to the seemingly moribund British manufacturing industry. Tata gains not only 60% of revenues, but also from improved management processes, advanced technology and access to the international stage.

India’s industrial outpost: Tata for now | The Economist.

Tata UK is now the country’s biggest manufacturer, with almost 40,000 workers—just ahead of British Aerospace. Add in Tata’s service industries, such as consultancy, and the payroll tops 45,000 (see chart). Its presence in Britain is part of a growing trend. Britain is second only to America as a destination for investment by emerging-market firms, many of them from India.

But just how sweet is Tata for Britain? Any fears that Tata would strip out technology and ship it home have proved baseless. The headquarters of Tata’s beverage business is Uxbridge, a London suburb, not India. Resources have been poured into other businesses.