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India Knowledge@Wharton | Two sides of a rising rupee

India Knowledge@Wharton | Two sides of a rising rupee
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First Published: Sun, Aug 05 2007. 07 03 PM IST
Updated: Mon, Aug 06 2007. 05 27 PM IST
India’s rupee, which once traded for 47 or 48 to the US dollar, has been rising rapidly. It now stands at 40 to the US dollar. As a result, the revenues of India’s exporters—which include IT firms such as Infosys, Wipro and TCS—have been affected and earnings have been squeezed. At the same time, though, consumers are benefiting from cheaper imports. How should India manage this trade-off?
According to Wharton finance professor Jeremy Siegel, although Indian firms will need to watch their export costs more carefully, the 10% to 15% savings on imports should be passed along to consumers. “My feeling is that India should not move against this,” Siegel said in a recent interview. “The exporters have had it really good. Let’s give the Indian consumer a break and continue to make sure that the exporters are going to have to stay on their toes as far as competitiveness is concerned.”
Despite the pain to exporters, currency appreciation can curb foreign capital inflows which can have a crippling effect on markets in the long term. “By letting (the currency) appreciate, people are a little bit more cautious,” Siegel said, citing the era of fixed exchange rates in Thailand, Taiwan, Indonesia and the Philippines that precipitated a crisis in 1997. “All of the capital that came in—they couldn’t deploy it favourably, and the result was over-consumption, deficits and then finally devaluation.”
According to Siegel, balanced economic growth “requires not just pushing exports, but also developing your middle class. And you develop your middle class by passing on some of those price gains that you get through strong currency, to lower their cost of living.”
Pre-announcing vs a surprise unveiling
When it comes to rolling out new goods and services, companies tend to choose one of two strategies as a way of generating interest in their products, whether it’s Apple’s iPhone or Microsoft’s latest operating system. One is pre-announcing the product to give customers, partners and even competitors advance notice of what’s to come. The second approach is the surprise unveiling, where a company hopes to make a big splash by giving few hints about an upcoming release. Which approach is better?
“It’s not a clear-cut situation,” says Wharton marketing professor Jehoshua Eliashberg. “What matters more is a company’s position in an industry. If a company is a dominant monopolist, it has reason to pre-announce because it doesn’t fear a competitive reaction. If the company is smaller, the negatives of announcing a product early outnumber the positives.”
Marketing professor Christophe Van den Bulte agrees, but notes there are many variables to consider, including audience, dependence on partners and consumer buying cycle. One rule of thumb is based on product classification. If a product is a durable good—something that lasts a few years—pre-announcement can make sense because the buying cycle is longer. If a product is a consumable that’s easily replaced, product plans should usually be kept secret.
When a product launch draws a lot of attention, however, the big lesson is that the product itself matters more over time than its initial splash. For example, Microsoft’s Windows 95 product launch is generally considered to have been a big success. But Eliashberg isn’t high on Microsoft’s Vista operating system, even though the marketing strategy—announcing the product’s development years in advance—was similar. Says Eliashberg: “The issue isn’t marketing strategy. It’s the product. If the product isn’t there, marketing won’t help.”
Getting the London ‘Tube’ back on track : terrorism to the olympics
Three bombs rocked the London Underground (LU) within 50 seconds of each other near the end of rush hour on 7 July 2005, killing dozens and injuring hundreds more. It was the worst attack on London since World War II.
But the majority of the LU, or the “Tube”, as it’s known locally, was operating again by the next morning, according to Tim O’Toole, LU’s managing director and chief executive, who spoke at the recent 11th annual Wharton Leadership Conference. What made that possible, O’Toole said, was the response from LU’s frontline employees, not just at the bomb sites, “but across the entire network”.
Training, competence and the confidence that they instil, lie at the core of O’Toole’s management philosophy. Leadership on the frontlines beats orders from the front office any day, he said. And to show that sort of leadership, employees have to not only know their jobs well, but also believe in their own abilities. “Being senior management of LU is about taking credit for goals that other people kick,” he said.
O’Toole’s philosophy has been to create and communicate a vision that people can rally around, to ensure that they have the resources to get their jobs done and to enforce accountability if they don’t. Since arriving in London from Philadelphia in 2003, O’Toole has worked on putting these objectives in place and, in the process, has gotten credit for beginning the turnaround of a subway system. The Tube, though storied in its history, had become antiquated and inefficient, weighed down by outdated equipment and infrastructure and acrimonious labour-management relations.
His first challenge upon arriving in London was to instil a can-do spirit, American or otherwise, in LU’s beleaguered workers. And that’s where his commitment to competence and confidence came in. “It all starts with competence,” he said. “Too often, consultants and others who try to predict whether an organization will succeed focus on organizational structure and measures. Those are of secondary importance.”
Under O’Toole’s direction, LU has managed to hammer out a multi-year labour agreement and has begun a $40 billion (about Rs1,600 crore) modernization, replacing tracks, stations, signals and its radio system, all while continuing to carry its usual number of passengers.
“We’ve got to perform heart surgery on this patient while he plays tennis,” O’Toole quipped.
Delays and cost overruns have dogged the construction, as is often the case with large public projects, but O’Toole expressed confidence that it will be done by the time the Olympics are held in London in the summer of 2012. “My employees know that they will take the world to those games and take them home.”
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First Published: Sun, Aug 05 2007. 07 03 PM IST
More Topics: revenue | dollar | US | exporters | Marketing and Media |