money matters

Business Briefing 24/10

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Wall Street still mired in crisis and the CEO of Future Group shares what he learnt from the slowdown

What I learnt from the Slowdown

—Kishore Biyani, Group CEO, Future Group

» Paying more for procuring shopping bags is an indication that business is actually good. We had been paying a larg­er sum every year for this and this cost was seldom tracked. Sometime in December 2008, we were pleasantly surprised when our central procurement cell brought down the cost of procuring shopping bags by a whopping 30 per cent—due to a sudden fall in prices of polymer-based products. We realised we could save close to Rs 19 crore. And therein was a much larg­er story.

» During the preced­ing 18 months, while few realised it, we had slowly lost track of the huge cost build-up that a booming economy brought along with it. We were paying more for almost everything: salaries, real estate, business inputs. We had moved into a high-cost economy, where­in the cost of doing business had shot through roof, making business intrinsically uncom­petitive and unviable.

» The biggest lesson of the past year has been to never lose focus on the cost of doing business. During these times, all of us have learnt to get into the details of every possible cost head and see how we can contain it. Coming out of the economic gloom, business­es across the spectrum are far more efficient and productive.

» Earlier, a lot of business strategy came from reacting to competitors. This often in­creased costs for the entire sec­tor. Today, more enterprises are looking at opportunities for collaboration that will help bring down costs for the entire industry. So, more energy is be­ing spent on exploring areas for collaboration at the back-end, rather than on reacting to competitive pressures.

Wall Street Still Mired in Crisis

At first glance it looks like the return of good times for fund managers and banks in America. Goldman Sachs posted record profits of  $3.03 billion in the third quarter, compared to $845 million in the year-ago quarter. In the same period, JP Morgan reported net income of $3.6 billion, compared with $527 million in the year-ago quarter. Now, both these have been quite crisis-savvy, presumably having traced interest rate curves and deviations closely over the past decade with bond-player Pimco-like mania. However, in both cases, the bulk of profits came from trading with their own money, which may not be sustainable for a financial institution. And a substantial part of JP Morgan’s profits came through fixed income products from its subsidiaries. A close look, therefore,  reveals that old problems still persist. Asset debris picking could spell big bucks for those still around with brains and funds, but core banking, the business of real-sector lending, is still a mess, as underlined by losses at Bank of America and Citibank. Banks remain rigidly undercapital­ised. The macro scene isn’t much better, with the dollar in secular decline (which adds hedging pressure), even as the core risks (and mis-appraisals) that primarily caused the crisis in the US persist. The ‘global imbalances’ that underpinned the earlier horror show are far from resolved. Real-sector business is bust and US joblessness high.  But some dudes will get bonuses.