Saturday, March 07, 2009

Crumbling Pillars of American and Global Business

Iconic pillars of current empire of the world. GE, GM and Citi. All these three are benchmark indices for Dow Jones and now City is not far away from being disqualified from trading. How pathetic they look amidst the fear of devastation and ruins!

Citi share is available for cost of coke @US$ 1.02, GM share for US$1.86 little below the cost of gallon of petrol and GE share @ US$ 6.66 less than compact fluorescent floodlight bulb that it produces.

They were dream companies not just to work for but also get associated either as channel partners or customers or even as competitors.

Would they fail? I doubt because they represent the symbol of modern America. I am tempted to put all my life time savings in buying the stocks of these three. But I also thought the same for Rank Xerox, Lehmann Brothers only to see my hunch evaporate in thin air.

Washing Post article discusses two factors that catapulted these three to dizzying height of success and now the very factors that are turning out to be factors of nemesis. First is 'be financer to your customer’. Lend money and fuel the sales of your products. Sales galloped as the engine fueled by lending chain put the train of business on fast track. Now the same train is stuttering and coming to halt with lending crisis. The second factor is 'Globalization'. It was meant to spread risks, proliferate brand exploitation but now with foreign currency grappled with continuous downwards slide, global exposure is driving these behemoths on their knees. Would the management books be rewritten now?

Recent Business week
wonderfully analyzes the weight of 'Legacy Cost' of GM that is threatening to drown GM. US$ 1,600 per vehicle is the cost that GM must keep aside to look after retiree health and pension benefits ! With Legacy cost and wage agreement that is valid for another two years, GM must run their plants at 80% capacity irrespective whether they sell or not whether they make money or not . How tricky the situation is for them. This article not just provides the reasons for its failure but make an attempt to study the ramifications against the new plan of revival. I admire authors ability to study with depth and objectivity.

Y'day I heard a comment from my Japanese friend that Japan has one old men for every three productive young men and soon it would be two young for two old men. Would he be slogging his life to support old men or would he move to another country? He prefers later.

India Inc by virtue or lack of it, is immune from all three factors that are plaguing GM, GE and City. Robust domestic market, conservative lending banking system, collapse of combative unions has made them free from the factors of legacy cost, globalization and destructive financing.

Would this be new rules of the game for imaginative but fortuitous survival like slum dog?

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