Seriously, though heralded as a bold move, the amount of inconvenience this has caused to normal citizens is staggering.
Oh my god! The Modi government has made a huge announcement today. All 500 INR and 1000 INR notes have been invalidated in one fell swoop.
Banks are closed the next two days and ATMs wont be operating more than 2000 INR until the end of the year.
अब की बार मोदी सरकार। नोटों की बजा दी जोरदार।
One of the great things that attracts investor capital is the ability of third world countries to show double digit growth. This story of almost all developing nations mean a scope for investments for other organizations present world-wide. Various countries have different economic policies, such as the open policy by China to attract huge FDI, and the partially open economy by India which invites FDI but limits the amount which can be withdrawn.
Why is this story selling for the past 5 or so years?
The answer is simple. Third World nations represent an inefficient market. A place where the buyers and sellers do not have access to complete information about the transaction. Since there is hardly any organized sector in such markets, there is virtually no analysis done on the varied types of transactions. This absence of information creates an inefficiency in the market … the simple act of saving each and every market transaction and making it available to the public creates the huge value of wealth maximization for both the buyer and the seller.
Wealth Creation by Information Symmetry
Imagine a scenario where a seller wants to sell a book for five dollars, it’s slightly used but the book is not easily available in the market. But the seller does not know that … the seller implicitly assigns a value of 5 dollars and expects the same amount in return. Now if a buyer who values the book a lot more than that were to find about the book, then he will finish the transaction at five dollars (even if he were ready to pay more). So what just happened back there? A book was exchanged for a lesser amount than what it would have fetched. Had the seller known that it could have fetched more (if he had access to that information), then the seller would have generated more wealth by selling at a higher price.
Take a look at this scene from Pretty Woman, had Julia Roberts known that Richard Gere was willing to pay 4000 USD for the week, then she would not have settled on 3000 USD in the first place! This is the power of Information Symmetry!
So in developing countries such as Brazil, Tanzania and India, the one sure shot formula for wealth creation is by creating an information market and making it available to the general public. We can also refer to information markets as Free online Classifieds, a site where people can post information about their buying and selling requirements.
We wanted to sell our six year old car and used a similar service to get the highest price for a used car. Access to such an information market not only ensured that we got the highest bidder, but also reduced the transaction hassles for us.
Any information market (such as an online classified) brings the buyer and the seller on the same platform and ensures that the seller gets a higher price and the buyer gets a chance to purchase the same price at a lower cost.
An information market is hugely successful wherever the market is fragmented and does not have any organized player.
An information market also increases the reach of local organizations.
Back in the year 2006, when I was working for eYantra (which is a firm specializing in brand merchandise for corporates and corporate gifting), the buzzword in the merchandising industry was customization.
If it was a good looking merchandise, then it’s value rose by nearly 30%-50% if you could customize it to the customers needs. That was the time we got into a narrow niche of branded merchandise. Everything from iPhones to t-shirts used to be branded by the target corporate’s brand logo (as defined by their marketing team’s brand logo guidelines).
The going was good, and soon we had acquired our series A round of funding. This obviously attracted other players and companies based completely on customization were formed – companies such as Myntra.com (whose ads you see even today). Needless to say that Myntra has grown beyond customization and is now almost a full blown e-commerce portal.
It’s been almost 6 years since and I had almost forgotten about the retail and fashion industry. That was until I came across this smart company – they specialize in providing woven labels with the text customized as per your needs. You can check this site out – look here. The thing is that woven labels is not a new idea, in fact they have been around in Britain (in Coventry) for more than a century now.
The cool thing about these labels, is that you can order any amount you want and have them customized right there on that site. There is almost zero manual intervention in the order placement process and that’s what makes a strong case for customization in the retail markets.
If this kind of technology and business processes were there in India, then it would have taken the branding and merchandising market by storm. In a developing economy wherein almost everything needs to be branded, having a custom made woven label takes the branding experience in retail merchandise to the next level. The good part about developing economies is that they have ready access to the developed markets to look at successful business models.
In fact this idea is so awesome, I won’t be surprised if I start seeing a Label Yourself outlet in India within a few years!
Just when you think, what will these crazy bankers think of next … and boom comes the latest financial instrument ready to stupefy you … with its sheer ingenuity and innovativeness.
This latest debt instrument I came to know recently from a friend in UK is the equity release. Lets take a case of a country home in the UK which has a bit of mortgage attached and the owner wishes to make some new purchases. The first condition of this instrument is that the owner has to be above 55 years of age and the value of the house needs to be higher than the mortgage value. This difference is called the Equity of the house … now private financial institutions will provide these house owners with a method to slowly sell their house for a part payment on that equity value.
What’s so great about this opportunity is that the house owners are not on the streets trying to sell the house directly. Take for example, this equity release from Age Partnership, the ownership will be transferred only after a long long time … until when the house owner has access to a ready pool of funds. With the minimum age requirement of 55, and the average age in UK rising to 78, this means that the house owner has typically a good 20-25 years access to this pool of funds, which otherwise would only be made accessible post the sale of the house.
Thus, finances which would have opened up very later … and mostly by the inheritors, are now suddenly available to the house owner itself. This is great news for elder citizens who are having a hard time trying to maintain a lifestyle. This instrument clearly benefits both the institution and the individuals … a win-win instrument. I wonder, does this idea seem as good as those CDO’s back in 2008.
PS – The problem of all such financial instruments is the same – lack of regulation. With this, we can be sure to see the same … without any overseeing authority to stop malpractice, rogue institutions will realize the loopholes in the system (or lack of one), and exploit this. Any system without regulation is bound to the same problems. So the CDO statement back there really is not fair, but it’s always a risk to consider!
Today I was sitting with the Pristine content team and trying to figure out why are we going to see the biggest financial recession ever. Bigger than the one we faced in the year 2008. Definitely bigger than the Great Depression of 1929 that the United States had faced.
So, what’s the problem with have Debt management in first world countries? Well, a lot of the growth in such countries is fueled by increase in the GDP (which is primarily a factor of how much the citizens can consume). Linked with consumerism is the problem of having a limited income. So most organizations think how do I maximize the share of this limited income?
The correct way is to maximize the pocket share, or the mind share within this limited expendable income that an individual has. Apart from that, there are other ways … ways such as Credit! So do not pay me the entire amount now, pay me in instalments … 30 days free trial (which loosely translates into a 30 day credit period), and so on. Credit cards enable us to do that, loans, overdraft accounts … essentially all these instruments help a consumer to spend MORE. At the end of the day when this expenditure has to be met with payments, either the person defaults (in which case this debt is bad debts!) or the person raises another loan to pay off that loan.
What banks do at the other side is that when they recognize such bad debts, they try to sell such debts as forward cash liabilities to other banks. Based on these you have a new instrument which is called a Credit Derivative .. you will remember the CDO crisis of 2007-2008. The culprit is debt or lack of Debt Management.
The problem stems from the fact that Debt management in the first developed countries was not done in a proper fashion. Typically, countries in Europe such as UK, Germany, etc are so developed that a lot of individuals are running in the negative all the time.
But things are changing, in fact I am informed that the debt management in such countries is now being managed by third party agencies, for example, click here for UK debt management. The good part about having such agencies is that individuals can now de-risk themselves. So much so that the UK government is hoping to lean on the taxpayers to lend the government money to pull themselves out from the Euro-Debt crisis.
Interestingly enough, what can be done to reduce future debt crisis is to start cash utilization and stop unnecessary usage of the credit instruments. A reality check on consumerism also needs to be done, which is threatening to take the economies of most developed countries down. In the short run consumerism is definitely a helpful boost in the arm for the country’s economy, but in the longer run it has to be curbed.
I have been playing World of Warcraft (WoW) for over a year now, and I am thoroughly enjoying the break it provides over the weekends. It’s a great product and has been running for the past six years or so. Blizzard has done a real good job there, especially in capturing the player versus player interactions (PVP). One such place is the auction house (AH), wherein players can buy and sell items offered by other players in the virtual marketplace. In fact, the concept of auction within its games have been so popular that Blizzard has decided to include real currency in it’s beta version of Diablo III.
But, other than the in-game auctions, a surge of enterprises have sprung up around the game, right from WoW based clothes, to power leveling services (which I think are pretty pointless! If you want to play only the end-game content, then you are missing out on a lot of good content and not to mention the lore!!). That brings us to this post’s topic, ever since 2006, people have realized that players will be willing to pay up good money to buy virtual currency. That’s where a horde of enterprising gamers realized that they can make their game-plat profitable, and even into a scalable business enterprise. This is called Gold-farming.
How it works
Whenever you complete a quest in WoW, or sell any item to a Non-Playing Character (NPC), or sell an item on the AH you get paid in the virtual currency which is Gold pieces. The higher your level, the more gold you get. A dedicated player who plays the game for 8-10 hours can easily collect 3000 gold pieces a day (there are players who make higher as well, as high as 3000 per hour!!). You put 3 different people to do the same thing and keep farming and you have a gold generating machine. Currently (in the year 2012), a 1000 gold pieces are selling for USD 2.7 (roughly 120 INR).
I know it’s not much, but consider the fact that you have to pay USD 15 per month per account. Now you make around USD 27 per day per account. That’s approximately INR 35k per month. A gamer who is farming, will get paid around 6k-8k per month, leaving a profit of 10k per account.
Obviously, one major assumption I have taken over here is the gamer remuneration. This salary will only work in places where the cost of labour is low … namely third world countries. In fact in China, one prison was making the prisoners farm gold all day!!
Now, all was hunky dory at the start, but there is a teensy-weensy problem here. Laws of Economics.
Consider this graph, those are the demand and supply curves. As the quantity available for the same demand increases, the price that people are willing to pay for that good goes down, and vice-versa that as the quantity available for the same demand decreases, the price that people are willing to pay for that good goes up (since its going to be rare!!).
Now apply this to the gold farming business in WoW. Over the years, the number of people playing the game has seen upswings and downswings (in fact with the recent release of Rift, it has reduced quite a bit). Hence, the demand has actually gone down.
Also, the amount available/supplied is ever increasing … what I mean is that since its virtual currency, there is no limit to it. In the real world, the total volume of gold is 300673 cubic feet, but in WoW the virtual gold is infinite. You can farm as much as you like, its not going to be depleted. EVER.
What that means, is that over a period of time, the price of the virtual currency is going to drop. I did some searching, and this is true. The price for 5000 gold pieces in WoW in 2007 … was a maidenhead. Now, its just 600 INR :-).
Not a sustainable business, this gold farming thing no? I wonder what that girl must be feeling now that those very epic mounts are being sold within WoW for 80 Gold a piece.
Well, there’s always the dragon mounts.