China Vs. Brazil

 

China's economic prowess is well documented. But as Louis Basenese explains, while China represents a compelling investment opportunity, it isn't necessarily the best one. He notes some striking differences between Brazil and China. And explains why he favors Brazil in a head-to-head battle with China.

 

Forget China... It's Time to Bank on the Brazilian Consumer

Louis Basenese
Small Cap and Special Situations Expert

Hundreds of millions of Chinese citizens are on a crash course with the middle class.

A study from The McKinsey Quarterly supports this well-documented phenomenon, which estimates that it will take two decades before the Chinese nouveau riche reaches its full spending potential.

 

In turn, they're convinced that decades worth of profits are up for grabs.

I'm not about to refute that claim here. But instead, I want to caution you: Don't be blinded by the euphoria over Chinese consumers and overlook an equally compelling opportunity in another emerging market.

Let's head down to Brazil and I'll explain why - along with the best way to profit, of course...

Sizing Up the Profits in Brazil

Okay, I get that the scale of the Chinese opportunity - a population of 1.31 billion people, compared to Brazil's 192 million citizens - dwarfs Brazil's. But that doesn't mean the profit potential is any less.

On the contrary, in fact... I'd actually say it's greater when it comes to tapping into a blossoming middle class. In this regard, Brazil boasts several notable advantages over China...

• It's a democratic nation, not a communist one.
• Its population is much younger - the median age is 28.3, compared to 33.6 in China.
• Brazil is far less reliant on exports. Only 14% of Brazil's GDP comes from exports, compared to 35% from China.
• It already possesses all the natural resources necessary (and then some) to support its booming economy. Meanwhile, China needs to go out and gobble up foreign assets to ensure it can keep feeding its economic machine with enough oil, gas, coal, iron ore, etc.

But most important of all is the cultural difference. The Chinese are notorious savers, yet Brazilians love to spend, spend, spend. And don't just take my word for it. As Illan Goldfajn, Chief Economist at Brazilian bank, Itaú, reveals, "If the world is looking for savers, Brazil is not much good... But if it's looking for consumers, then we might be able to help."

Conspicuous Consumption, South of the Equator

Like China, Brazil's economy is also expanding at a healthy clip. GDP growth this quarter is expected to check-in at a tidy annualized rate of 9%.

As a result, unemployment is falling and incomes are rising. And that's leading to an explosion in the middle-class.

Over the last four years alone, Brazil's middle class has swelled by 24%, lifting roughly 20 million people out of poverty, according to Brazil's Census Bureau.

Furthermore, PriceWaterhouseCoopers Consultancy expects this rapid increase to continue. So much so, in fact, that it will propel Brazil's largest city, São Paulo, from the forty-sixth spot on the world's wealthiest city list to fifth place in a little over a decade.

And I have no doubt all that newfound wealth will quickly be spent. Because it already is being spent! Consider this...

• High-end jeweler Tiffany & Co. (NYSE: TIF) boasts more stores in São Paulo than anywhere else in the world.
• Handbag maker, Louis Vitton earns some of its highest profits per square foot in Brazil.
• And consumer credit use is up roughly 30% per year for the last three years.

And despite all this, Brazil's consumer-spending boom is still in its infancy. Thanks to a surging economy and stable inflation, we can expect more and more Brazilians to be able to afford their first mobile phones, cars, even homes in the years to come.

And if you want to know the hands-down, best way to profit from this trend, here it is...

How to Add Some Brazilian-Style Swing to Your Portfolio

Go with small caps.

I say that because the majority of the companies in Brazil's small-cap sector cater to domestic consumers (either directly or indirectly).

We're talking about businesses like...

• Banks
• Homebuilders
• Department stores
• Telecoms
• Airlines

These industries are destined to profit the most - and in turn, witness the most appreciation in stock prices, as conspicuous consumption takes root south of the equator.

And for you naysayers and China lovers out there, the stats back up my claim that Brazil is a better place to profit right now. Brazilian stocks are up 128% this year, compared to a 62% rise for Chinese stocks, based on the MSCI/Barra indexes.

Momentum is squarely on our side. So don't fight it... embrace it!

Thanks and Regards,

Navneet Singh Chauhan.

Future of BPO…

Rage Frameworks' Venkat Srinivasan: 'The BPO Market Is Not Sustainable in the Long Run'

Published: December 17, 2009 in India Knowledge@Wharton

"There is automation, and then there isautomation," says Venkat Srinivasan, co-founder and CEO of Rage Frameworks, a Massachusetts-based startup whose technology he claims will radically change the way companies manage business processes. Rather than investing in outsourcing or business process management tools, Srinivasan -- a New Delhi-raised serial entrepreneur -- says companies now need to move up the evolutionary scale and embrace automation that lets them segment and change the way they work with hyper speed and efficiency. But is business process automation -- or BPA -- simply adding to the alphabet soup of tech jargon?

The following is an edited transcript of Srinivasan's recent interview with India Knowledge@Wharton.

India Knowledge@Wharton: Could you explain the differences between business process automation (BPA), business process management (BPM) and business process outsourcing (BPO)? Because the acronyms are so similar, it's easy for people to confuse the three. And specifically, what is going on in the BPA market in which Rage Frameworks plays?

Venkat Srinivasan: We are constantly trying to do a better job of [explaining the differences] on our website and in our presentations. The way we define and practice BPA makes it a new category. There is no well-established BPA market. It is a market that we are, in some ways, creating. Having said that, let's parse those three items separately.

Business process outsourcing, or BPO ... is based on cost arbitrage, with players who are in low-cost locations around the world that shift the burden of work [from one location to another to take advantage of lower costs]. Everyone understands this is basic BPO. You are throwing bodies at a problem. About 10 years ago, that certainly was an attractive proposition for companies. Therefore, we have a large BPO market today, which is still growing at double-digit rates. At Rage Frameworks, our view is that the BPO market is not sustainable in the long run. That market has to evolve.

There are several factors that make cost arbitrage evaporate over time. First, the "pop" you get from cost arbitrage is one-off. Let's say you transfer a business process to India. You lower your costs by a third, but then that's it. The second factor is that costs in the low-cost locations will rise. It's the basic forces of demand and supply. There is now significant wage inflation in India. The "pop" you got in the first year is going to be whittled down, because you have 20% to 30% wage increases each year. (That is a good thing for people in India.)

If you play this out for five years, the cost differential isn't going to be as much as it was when you shifted the work overseas. It will probably never be equal. Otherwise, there would be no reason to go. But when you add up all the other issues that go with it, BPO becomes unsustainable in the long term. Companies currently relying on BPO will have to evolve to a different model.

India Knowledge@Wharton: Are you suggesting that business process automation is part of the evolution of BPO?

Srinivasan: That's right. It's where both BPO and BPM have to end up. The other issue with BPO is that you don't get to a better place with it. Most BPO companies today promise their clients that they will improve processes. However, throwing bodies at the problem gives you, at best, some basic technology solutions. All the BPO business models tend to be "body" driven; pricing is the number of bodies multiplied by the cost per body and there is very little incentive to improve processes.

India Knowledge@Wharton: In that traditional BPO model, no customer is going to get the scale they need.

Srinivasan: Yes, scale, as well as process improvement. Businesses are ultimately interested in improving their processes. As you scale up, different problems emerge. As new business trends and needs in the market arise, your business processes need to change. With BPO, a customer doesn't get any flexibility in execution. You get only lower cost with BPO. At Rage, we have large, global clients, and many of them are big BPO users. They are very frustrated. It is obvious that in moving the market toward BPA, these firms clearly recognize that shipping 700 jobs to Malaysia to lower costs isn't necessarily better in the long term.

India Knowledge@Wharton: Now let's look at business process management.

Srinivasan: The operative letter here is the M. BPM is largely a set of software providers, who have evolved from the days of Six Sigma and reengineering.... If you look at a typical large enterprise, there are a plethora of business process challenges. There is no systematic institutionalization of their processes. When things get to a head, somebody says, "Either call in Six Sigma-qualified consultants or get somebody to help us reengineer our process." ....Generally, the company has an intimate idea of what it does on a day-to-day basis, but there is no holistic view of the process. Without that view, you can't attempt to figure out how to do things differently. The consultants provide that value.

....A primitive form of BPM is a flow-chart tool. Today, BPM vendors are more sophisticated. They allow you to document, manage and measure processes. Then you take the processes and go to a technology-services company and say, "Here are our current processes and here are the processes we want. Can you help us implement [the change]?" The next generation of BPM vendors has moved into facilitating implementation. Several tools now generate code to implement business processes. That's where the big differentiation is between what they do and we do with BPA.

There are several issues with the current generation of BPM tools. You don't solve the age-old problem of time-to-market. By the time this technology is built for your new process, the process is outdated. It is of no use. It still takes a long time to implement.

India Knowledge@Wharton: Processes are constantly evolving.

Srinivasan: Exactly. It is never-ending. The entire essence of BPM is to increase agility. Some firms talk about their "agile" BPM methodology. While it is more agile than before, it still takes a long time, and because its implementation is still done in a conventional paradigm by generating code, that solution is often outdated. This generates frustration at large, global institutions.

Let's go on to the way we practice BPA. An acronym such as BPA doesn't do justice to what we do.... Let's think about how conventional software development life cycle (SDLC) works. You have an idea. You take the idea and expand it into a set of requirements. Then you design it and your development team codes it. You test it and you release it.

Technology development, over the years, has come a long way. However, the focus has been on tools to help achieve more consistency and faster throughput. Twenty years ago, technology execution was a big [issue], but the problems were reliability and consistency, as was coding and programming. We focused on whether you were a good programmer or a bad programmer. Today, countless firms are good at basic programming. Good programming is fast becoming a commodity. I don't want to trivialize the value of good programming or engineering, but there are lots of CMM Level 3+ firms out there. They do a great job of giving you consistency and reliability. That issue has been largely resolved.

The issues that have not been resolved is time-to-market and flexibility. When you go through SDLC, you take a company's business description and translate it into a machine-readable description. The translations don't add any additional value. The idea is still your idea, but to get it to work requires the translations, and they take time and are of no practical value. If you could implement your business idea without programming, why would you not do it?

Rage has created a technology platform where -- instead of a forward engineering-oriented lifecycle going from an idea to release in a clockwise cycle -- we have eliminated many steps by creating an abstract engine that understands the idea of software development.

India Knowledge@Wharton: Can you share an example?

Srinivasan: A 100-year-old global financial institution needs to roll out a new credit card. It knows exactly what it wants to do in terms of a process to evaluate an applicant and issue, reject or price a credit card properly. This is the business process. [But] with millions of applicants, [the process] not scalable without technology. The firm estimates that -- even with BPM tools -- it would take 18 months to roll out the new credit card.

India Knowledge@Wharton: And this is in a very experienced firm. No other firm would be able to do it faster?

Srinivasan: That's right. In this case, there is no physical product. The process is its product. It evaluates your risk and then calculates what level of risk it is willing to take and how to price the card. We did this for them in two weeks, not 18 months. This is not a hypothetical case. I can give you lots of examples like this, even within the same institution. It is endemic of all such institutions because conventional SDLC and BPM tools work at a low level of granularity and documentation alone is going to take two or three months.

Let's take the credit card case and drill deeper. Why were we able to do this in such a short span of time? Rage's framework has a series of abstract components. It is like Lego, but these Legos are highly "morphable."

Let me break this particular process into three steps. Step one is to gather information from internal and external sources about the credit card applicant, which could be around 10 sources. It is a big step with conventional technology, because it requires you connect to multiple sources. In step two, you normalize the data. You need to "flatten" the information to get a sense of what someone's profile looks like. You need to apply a series of rules on the data. Most companies won't blindly use the score from [credit-check company] Fair Isaac to assess risk. They'll also use rules of their own.

The third step is to determine the outcome. Rarely does the firm say "yes" or "no." A decision in this context is a continuum. There is "yes" and "no" on the two extremes and then a bunch of pricing decisions in the middle. For example, the system may add 200 basis points to the interest rate on an applicant's credit card depending on the risk.

The fourth step is issuing the cards. This is the easiest step, as the firm is well established. It can issue a million cards an hour. But the first three steps are very hard because they have to be done with legacy systems and have to integrate many external sources.

To accomplish step one, we use an abstract component at Rage called the Connector Factory. There is no programming required. Instead, we type the structure of the information from the first source, we go to the second source and do the same thing, and so on.

There are very important ideas in what we do at Rage and the acronyms might make people put us in the same bucket [as BPO and BPM]. That's our toughest challenge. We create mission-critical technology implementations without programming. In technology terms, we have created a very sophisticated abstract platform using a highly model-driven architecture. But more importantly, going back to SDLC, we leave your business processes as high-level models. From a layman's point of view, we are a live solution that can be modified at any time....

Your flow charts are still there. But if you are driving to work and you get a new idea, you can pull up the flow chart, modify it, save it and it's ready to go. It is live.

Rational Rose, a big product that IBM owns now, takes eight months to finish modeling because you have to go to a very low level of programming constructs. Rage does the modeling at a high level and reduces the logic to data. It's very abstract. BPA is the best acronym we could come up with.

India Knowledge@Wharton: Is what you are doing at Rage informed by one of your earlier companies, eCredit.com, a real-time credit services for e-business?

Srinivasan: This dates back to my doctoral thesis and work as a consultant. [With an interest] in and around time-to-market, I was primarily a finance guy with expert systems and artificial intelligence to support human decision-making. This is just one big evolution for me. I started out by asking: "How do I 'operationalize' flexible decision-making applications or use of technology in the credit decision-making context?"

India Knowledge@Wharton: In the credit-making context, with eCredit?

Srinivasan: That was the original idea, but one thing led to another and in those days I invented whatever I couldn't find. That was in the days before Windows. We didn't have graphic user interfaces. Then I ended up doing a lot of stuff on the Mac because that was the first graphic user interface available....

India Knowledge@Wharton: Why don't the big institutions automate all their business processes? Is there risk involved? It seems there is a cost advantage.

Srinivasan: Our guys were at a recent conference organized by a financial institution for its global supplier base. These people have more than 300 or 400 global vendors providing BPO services. The theme of the conference was automation. People very clearly have moved from BPO to BPM.

Our point at the conference was, "There is automation and then there is automation." There is automation that is going to become legacy the moment you finish. That is not the automation you want. You want automation that is going to be flexible and let you adapt to changes.

Rage is a tiny player. We are the new kid on the block. We are promoting flexible automation....

India Knowledge@Wharton: It sounds as if part of your challenge is to stimulate that market.

Srinivasan: Exactly.

India Knowledge@Wharton: Is there a BPA application for, say, financial regulators or people looking at health care costs or energy markets?

Srinivasan: Every business is a collection of business processes. It doesn't matter what field you are in. Our [job] is to look at every task and think about how to create an abstract component that can help somebody automate the task in an intelligent, flexible manner.

Most work models today are centered on individuals. Companies are interested in leveraging technology in an intelligent manner. Rage has knowledge-based components -- rules, decision trees, computational expressions, natural language processing, etc. The point is not about automation. Rather, from a business point of view. The point is about scalability....

Today, the general work model is centered on an individual. What do we do when we go from 15 to 100 individuals? We write a policy manual. We write procedures. Why can't we just automate it?.... Generally, you automate the stuff that is well understood and not going to change. The moment some aspect of your process has dynamic characteristics, you struggle. This is where conventional automation pigeon holes the business process and says, "We just can't scale if we try to accommodate the dynamic aspects. We are not going to automate it."

....As you grow, you should institutionalize processes so you're not relying on someone to remember what the process is. That way if an individual enters the process only if the individual is required to execute a task. But today, process memory is in the minds of an individual and not institutionalized anywhere. Rage is attempting to provide a framework for institutionalizing business processes.

India Knowledge@Wharton: How did Rage decide to incubate and spin off or nurture other companies? Your firm is very lean. How did it come up with the bandwidth to do the other stuff?

Srinivasan: I wanted to do this within eCredit. The idea was very simple. We felt that our technology was applicable in many areas.

India Knowledge@Wharton: So you built different verticals?

Srinivasan: Precisely. We launched individual subsidiaries because we thought it was a pragmatic way of scaling them when external financing was needed.

India Knowledge@Wharton: How critical is the proprietary nature of what Rage is offering? How important is intellectual property?

Srinivasan: It is important. We probably have a 24-month lead as a first mover. Having said that, we are continually trying to protect our IP rights by applying for patents.

India Knowledge@Wharton: I am curious about your stint with the consultants Bain as an "entrepreneur in residence." How did this happen?

Srinivasan: Bain was the seed investor in eCredit. I have had a long relationship with Bain. When I came out of eCredit, I wanted to do Rage. Bain was, at that time, starting up its venture funds again and offered me an opportunity to come in while I was still formulating Rage to help get the funds going. They already had the venture fund and a very good team ... but I helped with due diligence and investing in technology start-ups.

India Knowledge@Wharton: When did you decide to leave academia and get dirt under your fingernails? Did you wake up one day and say, "OK, that's enough" or had it been building for a while?

Srinivasan: It wasn't a sudden wake-up call. When I look back, it seems very premeditated, even though it wasn't. Fundamentally, I am a creator.

Even in the academic world, I spent a lot of time doing research. That was the outlet for my creativity. Then I got involved in consulting assignments with Fortune 500 firms. In these assignments, I realized that what these guys really need is a software product. I looked at all the "decisioning" variability in these groups and try to figure out how to institutionalize credit policy.

I began doing "skunkworks" projects [or quick projects developed by small groups of people] in [a] spare bedroom. I would show them to somebody and they would find it interesting. I kept iterating. Finally, I had something that could be used. Apple was the primary catalyst. In my sabbatical year, I decided that I was going to continue in my academic role and kill this project or I was going to give up academia and start a company. I had to do one thing or the other.

India Knowledge@Wharton: How have your roots played a part in that story?

Srinivasan: One is problem-solving. My path through my professional career -- and even through school -- was somewhat skewed toward problem-solving. I always had an opportunity to solve difficult problems. I used to work for Union Carbide in India, where there were lots of challenging problems. I was also determined to make things work. When I started eCredit, the credit managers of many companies didn't believe that our vision of creating a knowledge-based application would ever happen.

In India, we had to work with very little. I grew up in a middle-class family. In school, I used to play badminton -- I still do. We didn't have any courts, so we created our own court. We just invented what we didn't have. I'm sure there are hundreds of thousands of millions of stories like this. For me, at a minimum, it created a sense of confidence and determination.

[Then there's] repetition. My kids have gone through school in the U.S. and I see a lot of benefits in their education. They are growing up to be well rounded and wanting to learn. When I was growing up, we were never encouraged to ask "Why?" In fact, I was punished in class if I did. One benefit of that system, however, is that it instills high levels of concentration. All I did was repetition. I remember spending two hours after school every day solving math problems. That's it. That's all we did. We solved math and accounting problems and we were timed. Such repetition sharpens your focus and concentration. We had no alternative.

India Knowledge@Wharton: How have you been able to interact with the Indian diaspora in the Boston community?

Srinivasan: Two things have helped. One is the Indian diaspora and the other is Bain. Both groups have always encouraged me. I have known Bain for almost 20 years, back when it was a very small firm. In the Indian diaspora, I have lots of friends and I am on the board of TiE-Boston [a global non-profit promoting entreprenurship].... I'm very involved with TiE Boston, and we mentor young entrepreneurs [and] I'm involved with the American India Foundation. We support Indian [non-governmental organizations] on a large scale. AIF is more about giving back to India whereas TiE is more local.

Compiled and Adapted from

http://knowledge.wharton.upenn.edu/india/article.cfm;jsessionid=a830cf09b72442ad81c76a66141d26265f4a?articleid=4435

And brought to you by

Navneet Singh Chauhan.

VidyaGyan: A New Model for Improving Rural Education?

 

Published: December 17, 2009 in India Knowledge@Wharton

On July 10, 2009, Bishwajit Banerjee stood outside the new VidyaGyan school in Bulandshahr in Uttar Pradesh (UP), some 60 kilometers from New Delhi. "I was extremely nervous," he recalls. Shain Khan, who also stood outside the school on that day, remembers feeling the same emotion. "I cried. I missed my mother. I decided to run away."

Both had reason to be anxious. Forty-four-year-old principal Banerjee and 11-year-old student Khan were taking part in a new experiment in education.

"VidyaGyan is a radical concept that aims to ... transform meritorious rural children from economically disadvantaged backgrounds, providing them free, world-class education, allowing them to transcend the disadvantages they face," says T.S.R. Subramanian, who is spearheading the project. A former cabinet secretary to the Union Government and chief secretary in UP, Subramanian says VidyaGyan is an idea whose time has come. "There are [Mahendra Singh] Dhonis everywhere," he says. (Dhoni is India's cricket captain; he comes from the backwater state Jharkhand.) "Children in rural areas have great potential; they will flower if given the chance."

VidyaGyan is an initiative of the Shiv Nadar Foundation -- set up by Shiv Nadar, founder of the U.S.$5 billion technology group HCL. The first school has just opened, taking in 200 students from the fifth grade who scored the highest on the UP state board examinations. From the sixth grade onwards, they will study at VidyaGyan, a residential institute where all expenses are paid. The students are from economically challenged backgrounds, and VidyaGyan aims to mold them into leaders.

"The quality of primary and secondary education in this country is abysmal," Subramanian says. "We have a few world-class institutes -- the Indian Institutes of Technology (IITs) and the Indian Institutes of Management (IIMs), for instance -- in higher education. But there is no equivalent in the primary education space, except for a few private schools in urban areas."

Subramanian notes that community involvement in education is central to the project's mission. "Fist, education is too important to be left to the government. It must be a community effort. And corporates must be involved in this as part of the community. Second, we must bridge the urban-rural divide. We are unfortunately developing an urban society that is rich and a rural society that is poor. Third, this is a public-private program. We think this is the way to make progress in this area." Subramanian praises the UP government's role in this initiative: Among other things, it is responsible for the selection of the children.

Bridging the Divide

The project has been percolating for quite some time. "When I retired from the government eight years ago, I started the Indian Education Foundation to provide technology for rural schools," he says. "But we couldn't raise resources. There was a recession and we failed to find funds, even in the U.S. I was on the board of HCL. We were talking about a university -- which is [opening] up in June-July next year in collaboration with Carnegie Mellon -- and the VidyaGyan proposal came up naturally."

The Shiv Nadar Foundation's mission is to create a more equitable, meritocracy-based society and empower individuals to bridge the socio-economic divide. The foundation aims to achieve this primarily by setting up outstanding educational institutions that provide meritorious students from all walks of life the opportunity to receive a world-class education. VidyaGyan is part of a growing number of the foundation's projects, including the SSN College of Engineering, the SSN School of Management & Computer Applications and the SSN School of Advanced Software Engineering. ("SSN" stands for Shiv Nadar's late father Shri Sivasubramaniya Nadar.) Adding to this are initiatives like the VamaSundari Trust, which has already distributed US$6 million in scholarships.

"We have always believed in building institutions of excellence ... to last," says Nadar. "The school will not only provide these very deserving kids a global education; it will also build leadership and character. These children have risen above exceptionally challenging circumstances to top their districts. Twenty years hence, these kids will not just fill a job vacancy. They will go out and change the world."

"VidyaGyan [is] personally a very challenging and exciting project for me," says Roshni Nadar, Nadar's daughter who is a trustee of the Shiv Nadar Foundation and executive director and CEO of HCL. "The first school is off the ground and the next -- possibly at Varanasi -- will come up soon. After that, there is the Shiv Nadar University, which will be modeled after top-notch U.S. universities.... [VidyaGyan] is financed entirely by the Shiv Nadar Foundation, which has set aside substantial funds needed for a project of such quality and impact."

As for the funding required, Subramanian says, "The land cost US$3 million," he says. "The infrastructure costs another US$7 million." Not all the money has been spent as some facilities have yet to be built. "Our running costs are US$1,600 per child per year. It will be less -- US$1,200 to US$1,400 -- when we achieve economies of scale." This is just the beginning, he adds. "In two years, we will have four or five schools." The final plan is for a network of more than 50 schools.

Raising Eyebrows

The infrastructure costs have been raising some eyebrows in a country where rural schools often lack a blackboard and even a roof. But VidyaGyan is not cutting corners. The first school at Bulandshahr is spread over 20 acres -- 14 for the school itself and six for housing. The total facility area is 250,000 square feet. There will be 30 classrooms (10 are operational now), a hostel for 700 students, a language lab ("To teach our children to communicate in English is a major challenge," says principal Banerjee), a computer lab, a math lab, a library, an amphitheatre seating 800, an auditorium, an athletic track, a football field, a skating rink and indoor sports facilities. An eight-acre sports complex will be built next to the school campus. This will include a cricket ground and other outdoor sports facilities. "All this may be commonplace in urban schools," says Banerjee. "But for most of our students, this is very new."

Banerjee offers a report on students' progress so far. "Shain was not the only one with problems," he says. "She adjusted and is happy now. [One] boy from Badauin district just could not settle down and his parents took him back home. After a few days, he came back on his own... In the first month, we often got calls from anxious parents. Some of them visited the school. Now, all that has stopped. They have seen our facilities and what we provide."

Banerjee explains that the children -- 126 boys and 74 girls -- are housed in separate hostels with round-the-clock security. "We had asked the children to come with only two sets of clothes and the school is taking care of all their other needs -- books, stationery, uniforms, sports outfits, other clothes and items of daily use," he says.

But what will happen during the holidays when they return home? Will there be adjustment problems? "We don't know," Subramanian says. "But we realize the problem...."

There is another adjustment issue, though it will not come up for some time. What will happen when the students finish and start college? Higher education is expensive, and having a child at VidyaGyan is not going to change the economic status of his or her family. Subramanian says they will continue to mentor the children through their first year in college. And money problems are easier to solve than the tougher task of providing education, he adds.

VidyaGyan may have ambitious roll-out plans, but it has no intentions of spreading beyond UP. "We looked at UP and Tamil Nadu (TN)," says Subramanian. "Both [Nadar and I] were born in TN. But the need in UP was greater. At the moment, we are only in UP. We will take stock later; we don't want to bite off too much."

According to executive coach Gopal Shrikanth, the strategy makes sense. "VidyaGyan's decision to focus all their energies on transforming a single backward state such as UP, rather than spreading themselves thin across the country, is unique. This model should hopefully be an inspiration to other companies to 'adopt' other backward states."

'Islands of Excellence'

How has the establishment and the academic world responded to VidyaGyan? "I think it is a very good idea," says Dipankar Gupta, a recently retired professor from the School of Social Sciences, Jawaharlal Nehru University (JNU), New Delhi. "In fact, I had a thought along these lines but could not pursue it. If these schools are able to produce outstanding students who can get to Wharton, IIT, LSE [London School of Economics], IAS [Indian Administrative Services] and so on, that would be fantastic. In other words, the training should be world class, from science and language to deportment and confidence building."

According to Gupta, the impact would be cumulative. "If Nadar is able to produce top-class students from poor homes then, over a period of time, they will form a critical mass. This can be used to pressure the state to deliver quality education. I think the best thing that NGOs and philanthropists can do is to shame the state into delivering and not become alternate nodes of power and influence."

Is there a danger that a school like VidyaGyan could become elitist, producing misfits in their social milieu? "By and large, this is a noble cause that is for the good of Indian society," says Shrikanth. "However, similar social reengineering initiatives have mostly resulted only in the immediate families of such students benefiting, socially and economically. Beyond acting as an inspiration to their communities, the majority of such beneficiaries do not seem to devote their careers to working in or for their communities. Some beneficiaries do, however, go on to bestow endowments to community schools and hospitals, at a later stage in their lives."

That, itself, could be an adequate return, says Gupta. "The advantage of an elite brigade of professionals from poor homes is a very strong and persuasive demonstration of humanity and the democratic spirit. Meritocracy is the bedrock of true democracy. The school must produce children better than our best schools. They should know better math and English; they should be great swimmers and orators; they should have confidence oozing out of their pores. This will give those who are elitist by birth a kick in their pants."

In response to concerns over elitism, Subramanian asks: "Are the IITs and IIMs elitist?"

Dileep Ranjekar, chief executive officer of the Azim Premji Foundation, wonders whether VidyaGyan is really a solution. "Research tells us that only a negligible percentage of [these initiatives] deliver education that is envisaged by the National Policy for Education. A private school does not necessarily symbolize higher quality of education for children unless it is managed and run on certain accepted principles." Moreover, he notes, even if the school is good, the model may not be replicable "because of the high cost of establishing such facilities and the management bandwidth involved. These schools continue to remain as 'islands of excellence' -- assuming they are managed well -- rather than proving to be role models for the larger universe of schools.

"Our experience indicates that the best practices in one school are not transferred to other schools," Ranjekar adds. "In addition to such efforts, we need all influential people to exert pressure on the government to deliver high-quality education to all children in the country. Otherwise such schools can only add to the already existing inequity."

S. Ramesh Kumar, professor of marketing at the Indian Institute of Management Bangalore, feels that credit must be given where it is due. "At a time when ... there is a strong emphasis on corporate social responsibility, it is nice to see a reputed organization heralding a laudable social objective In India. Given the commitment reflected in the very concept, such an attempt will work and perhaps inspire other firms as well. With technology making rapid strides, such initiatives will certainly create a level playing field in a country where around 50% of the population is below 25 years of age."

The success of the concept will depend on the kind of education imparted at VidyaGyan. "A sense of idealism that they will cherish throughout their lives has to be deeply rooted in these students during their tenure at the school," says Shrikanth.

"Skeptics are bound to raise a number of questions," he adds. "Are the plans for 70-plus schools realistic [in] the current economic climate? Would it have been more prudent to plan for just one central school, given the typical academic challenges of recruiting and retaining qualified faculty? Is the planned infrastructure a sub-optimal utilization of limited resources? Is this model sustainable, given that the source of funding will depend on a single company year after year?"

While remaining confident, Subramanian is humble about the final deliverables. "We are not saying that we are an example," he says. "But we propose to do our bit to show the way."

Compiled and Adapted from

http://knowledge.wharton.upenn.edu/india/article.cfm;jsessionid=a830cf09b72442ad81c76a66141d26265f4a?articleid=4438

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Media: The way ahead..

'Bigg' Prospects: Media Companies Tune In to India's Growing Entertainment Sector

Two hours away from busy Mumbai lies the sedentary Aamby Valley resort. This is where Viacom18, a joint venture between Viacom of the U.S. and India's Network18, has rigged up its sets for Bigg Boss (the licensed Indian version of the Big Brother franchise, originally launched in the Netherlands). The reality show is proving to be yet another milestone for Colors, the Hindi-language general entertainment channel (GEC) launched by Viacom18 last year. Through its unconventional programming choices, Colors has shaken deeply entrenched players in the CEG television category. For four successive weeks -- 41, 42, 43 and 44 (the numbering starts from the first week of the calendar year) -- the GEC has increased the gap between itself and its competitors -- Rupert Murdoch-owned Star Plus and Subhash Chandra's Zee TV.

"Our research told us that there was a fair amount of fatigue in the kind of shows that were running on GECs when we launched, and that viewers wanted something different and more relatable," says Rajesh Kamat, CEO of Colors. "This formed the basis of our content strategy. We opted for meaningful entertainment versus pure entertainment. We were disruptive in our scheduling to break existing viewer habits -- [showing] non-fiction during weekday prime time. And by paying more money to the distributors, we got ourselves placed right next to the most-viewed channel in the premium band in each market to ensure maximum walkthroughs and sampling."

Actor Amitabh Bachchan was in many ways responsible for delivering India's reality programming breakthrough for Star Plus eight years ago when he hostedKaun Banega Crorepati (the Indian version of Who Wants to Be a Millionaire). Now, Bachchan is back on the small screen as the host of Bigg Boss. Bachchan has been followed to the small screen by well-known Indian film actors such as Shahrukh Khan, Salman Khan and Akshay Kumar.

The hard-nosed reality format seems to be working across the GEC vector. While some programs are licensed shows indigenized for Indian audiences, others are pure-play original formats. "Entertainment doesn't only need to be diverting or superficial, or dumbed down to pander to the lowest common denominator," says Siddhartha Basu, promoter of production company Synergy Adlabs, who is responsible for many of India's hit reality shows including the hugely successful Kaun Banega Crorepati. "There should be a place for social realism in our general entertainment space, because that can genuinely connect with people's lives, their heads and hearts to a much greater extent. The ratings of both Aap ki Kachehri [a dispute-resolution program anchored by social activist and famous retired police officer Kiran Bedi] and Sach ka Saamna[Moment of Truth, which recently created a huge controversy in India for its risque content] demonstrate there's enough of an audience for such shows if they're done right."

The playing field has become crowded over the past couple of years, however, with the arrival of new challengers to Star Plus, which had dominated the Indian GEC space for close to eight years. In 2008, Viacom with Network18 launched Colors, Turner Broadcasting joined Indian production company Miditech to launch the Real channel, and NBC Universal joined NDTV to launch NDTV Imagine. Already, there has been some churn: Turner International, which inked a 50:50 joint venture with Alva Brothers Entertainment, owners of Miditech, wants to leave the JV. No new programming has been on air since July, and Real has stated that it wants to downsize operations. Similarly, NBC Universal has exited from NDTV Networks where it held 26%. In 2007, INX Media launched 9x, which was funded with the help of private equity players like Temasek and New Silk Route, but 9x ultimately folded due to ballooning costs and management issues.

That leaves Viacom, which remains invested in a healthy and viable business in India. Time Warner is reportedly negotiating with NDTV to pick up a majority stake in NDTV Imagine, though nothing has been announced yet. Meanwhile, Star and Sony Pictures Television have been in the India market for years: Star remains in constant battling distance with new entrant Colors, while Sony is attempting a comeback with new programming.

Also remaining steadfast is Subhash Chandra's Zee TV: For week 43, it displaced Star Plus from the number-two position with gross rating points (GRP) of 271 (compared to Star Plus's 229). Week 44 saw it slip back again, falling behind Star Plus, but only by a slim margin of nine points. One of Zee TV's strategies to revive its fortunes is launching new programs. More importantly, it has widened the ambit of its prime band, offering an array of shows from 7 p.m. to 11 p.m. (instead of 8 p.m. to 11 p.m.). In the first quarter of the new financial year (April to March 2009-10), Zee TV's GRP stood at 234, just marginally behind Colors' 258 and Star Plus's 255; in the same April-June period, it has emerged as the joint leader along with Colors in prime-time programming.

Foreign Players

Slowly, American studios and networks are grabbing larger swathes of Indian media and entertainment space. While it is still difficult to get a large toehold in the news business -- both print and television -- due to foreign direct investment (FDI) restrictions and caps, it has been relatively smooth sailing for Western players to establish a solid presence in the entertainment space. It has taken the Murdoch-owned Star Group many years to find traction in India -- partly the result of the Indian market dynamics and the fact that it had some misses along the way. Now, Murdoch-Star affiliate Fox-Star Studios is betting big on the Indian market as well. It has established what it believes is a one-stop shop for Bollywood producers and wants to put the building blocks in place to develop a viable and sustainable business, which might not necessarily be about scale and size.

"At the end of the day, India -- like China -- represents a business opportunity which needs to be captured on the ground," says Vijay Singh, CEO of Fox-Star. "We are trying to unlock these opportunities in India. News Corp. has been here forever, so it was natural for us to get here as well, being a part of the Group. While we distribute all the Hollywood films from Fox and marketedSlumdog Millionaire in India as a Bollywood film and succeeded with that, we also recently released our first production, Quick Gun Murugun." Fox-Star's next big bet is the Karan Johar-directed film My Name is Khan, which stars Shahrukh Khan and Kajol. It will be released in the U.S. by Searchlight and will have a mix of Hindi and English. Singh says he is working on four different projects as well -- "a mix of small- to medium-sized films."

Walt Disney has had a checkered history in India. Its first attempts to enter the market were a failure, resulting in a legal battle with Lalit Modi's Modi Enterprises. Eventually, it launched the Disney Channel and Toon Disney. Recently, it took a big leap of faith in the Indian market by buying Hungama TV from Ronnie Screwvala for US$30.5 million and then acquiring 59% in UTV Software Communications with an investment of US$170 million, allowing it access to one of the big production studios in Hindi cinema with hit films likeJodhaa Akbar and Race, and acclaimed, smaller budget films like A Wednesday.

One missing player is Bertlesmann AG, the third-largest entertainment conglomerate after Time Warner and Walt Disney. But all other key media companies -- from News Corp. to Time Warner, Walt Disney, Viacom, Sony Pictures Television, Liberty Media and Bloomberg, which recently entered into a content partnership with UTV -- have presence in the Indian market. Amit Khanna, chairman of the vertically integrated Reliance Big Entertainment, which recently formalized a 50:50 joint venture with Steven Spielberg's Dreamworks, notes that while many of these players have been in India for some time, "they are reinforcing their presence.... I think the realization that India is a growing market where everything has a low [cost] base has finally dawned on American studios and broadcasters. Entertainment spend is very low while penetration of DTH [direct-to-home satellite service], cable and other forms of access have a huge upside. This is the potential that is reinforcing the India story."

India vs. China

One driver of foreign interest is that India's media and entertainment industry is expected to grow to US$21 billion by 2014. Manjit Singh, CEO of Multi Screen Media (MSM), a joint venture between Sony Pictures Television and a group of Indian investors, notes that India "is an attractive market and one needs to have a sizeable presence in it -- more so because it is still under-explored. Star and Sony were ... the first to set up base here realizing that it was a market which had enormous upside."

Others note that while media companies recognized similar potential in China's entertainment sector, they have retreated from that market and have begun to focus instead on India. A recent report on the Indian broadcast industry inThe New York Times notes that "after many years of fervent lobbying and deal-making in China, American media companies have little to show for their efforts there and are increasingly shifting their attention instead to India. Media executives still believe that Chinese audiences are receptive to Western culture -- SpongeBob SquarePants is a big hit in China -- but many companies have been pulling back out of frustration over censorship, piracy, strict restrictions on foreign investment and the glacial pace of its bureaucracy."

According to Mohammad Mian, dean of the faculty of education studies at Jamia Millia Islamia University in New Delhi, there are other factors at play as well. "It is partially due to the disillusionment with China, but also due to the growing importance of India in the global scenario. Remember that we are an English-speaking nation. In my experience as an educator, the demand for English language [use] is only going up in India. We have a natural advantage in this regard. In fact, English should be made compulsory in India. When China realized that communicating in English was the biggest barrier to conducting trade and commerce, they, too, started making attempts to come up to speed, but we have a 250-year legacy advantage over them. That is why American broadcasters and studios find it easier to do business here."

In March, the Motion Picture Association of America opened an office in India for the first time, in Mumbai. A little over four years ago, Dan Glickman became the head of the association, and he has visited China several times. "The feeling was that there were greater opportunities then [in China] than there are now," he says. According to MSM's Singh, India is an extremely fertile market and its viewers are getting more discerning, showing deeper and wider segmentation. His channel is now focusing on small towns and segments of the strata in the metros as a way to capture greater market share.

Some companies are succeeding, while others are moths to the flame. Kamat notes that Viacom18 believed in Colors and resisted the temptation to short sell for a volume commitment in the initial months. Initially, the company did short-term deals until the brand achieved its potential. This helped it to get advertising rates commensurate to the GEC's performance. Now, less than a year and half after launch, Colors is doing a run rate of US$10 million per month, making it the fastest-growing channel. While Kamat may have succeeded on the back of big ticket reality shows -- Khatron Ke Khiladi (Fear Factor), India's Got Talent (India's version of Britain's Got Talent) and Bigg Boss (Big Brother) -- he is quick to clarify that India remains a soap opera-driven market. "Reality TV serves a dual objective of ratings and buzz for the channel. However, India is still a soap-driven market and will continue to be. The contribution of Reality to the programming basket is now up to about 20%, from 8% to 10% earlier. Soaps continue to be a staple diet and the Reality shows are the spicier offerings."

Compiled and Adapted from

 http://knowledge.wharton.upenn.edu/india/article.cfm;jsessionid=a830cf09b72442ad81c76a66141d26265f4a?articleid=4436