Tag Archive for economy

Information markets in Third World Economies

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China to attract huge FDI, and the partially open economy by India which invites FDI but limits the amount which can be withdrawn.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!

Information Markets

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.

Conclusion

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.

Customization in Retail Fashion

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… Read more →

CloneWars

Clone Wars

First came Best Buy. People were happy, they got good deals, saved some money. Good … but meh! Perhaps their launch was before time. Avante Garde. Then came Groupon. A multi-billion dollar valuation, e-commerce 2.0 buzz, social media tongues wagging about. It was the next big thing since the Internet. I guess over a period of time, folks soon realized… Read more →

Indian Services: A bleak future

With the Indian economy shifting from an agrarian focus to a service-based industry, a lot of foreign investors are attracted to the nation. However, the sustainability of this is under question. As service experiences from bad to worse and consumers are crying bloody murder in the courts, how will the Great Indian Dream be achieved? The word service comes from… Read more →