Need for Economists in Corporate India

Corporate India has been caught on surprise on many counts recently and most of them are macro economic events.

These have been namely credit rate hikes, inflation due to oil prices (consequent demand for better salaries and attrition) , market entry of new players and above all the rupee appreciation that shave off nearly 1000 basis points off the profitability of unhedged exporters.

Add to this the uncertainty in stock markets over remote events in the sub prime mortgage market in the United States that has actually led to many corporates getting below expectation results in their listing or Initial Public Offerings despite good fundamentals.

All these point to need for better corporate planning and strategizing for economic changes and events especially in a networked world.

Table 1-Top Macro Economic Events that caught corporate India by surprise and their impact

? Credit Policy Hikes by RBI 2006-2007 leading to expensive debt.
? Rupee Appreciation and RBI steps including curbs on ECB.
? Oil Prices and Inflation.
? US Mortgage Market, Effect on Global Equity Markets including India.
? SEZ Policy and impact on communities (this is more of socio-economic topic)

The primary impact of this has been exporters like Infosys missing their earnings guidance due to rupee appreciation, corporates like WNS having lower listed prices ,rising credit costs including for banks , and considerable rework of SEZ plans for corporates like Tatas and Reliance.

These are the biggest names in India, so the impact of lack of econometric planning and forecasting on smaller players is likely to be more.

Most corporates in advanced economies have business intelligence units and economic strategy and planning units. They are used mainly for forecasting sales using scientific quantitative methods like base driver models, time series models and regression models to predict and anticipate demand and align corporate supply and demand chains accordingly.

The usual audience for them is at CXO or Board level advisory positions.

In India while many corporates have started creating these units they are yet to gain the credibility and respect that they would have got in Western Companies.

Main reasons for these are as follows –
depth of Indian academia in application oriented research and their ability to adjust to corporate demands,
skepticism regarding modeling techniques most of which are complex for end users and corporate audiences ,
lack of investment in forecasting soft wares (like SAS , SPSS and even Excel/Solver ) and human resources in these units.

Most Indian corporates would rather hire five more sales managers than invest in two economists who would help create a much better forecast to help plan the corporate strategy.

This is partly due to historic mindsets and partly due to cultural risk aversion, as corporates engage in cost cutting, sales is looked upon as revenue units and planning units are cost centers. An additional complicating factor is that many companies still believe in push based sales, rather than pull based demand targets.

Table 2
Examples of Business Intelligence Units / Planning Units in Indian Corporates.

Muruguppa Group

Examples of Business Intelligence Units / Planning Units in other countries.

General Motors
British Telecom

An alternative for corporates unwilling to go into full fledged economics planning units is to become subscribers for customized content providers by third party providers.

This content could be in the form of business research, market research and segmentation studies, predictive models or even economics newsletters. The chief drawback to this is that due to the outsourcing and Knowledge Process Outsourcing boom, sales margins for third party content providers is much more when catering to the global market.

However even for the outsourcing sector it would be advisable to keep a foot in the domestic market, keeping in mind long term growth plans of Indian corporates and the ability to build domain expertise much better while catering to onshore Indian clients rather than offshore global clients. In the short term, these would be lower margins but it would help in building the domain expertise necessary for them to move up the value chain.

As the Indian economy is poised for sustained growth, the size and scale of this domestic demand for economics content would likely scale up manifold. Indian corporates should actually benchmark their demand planning and economic units from international players and partners

Author: Ajay Ohri

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