Category Archives: Market Intelligence

Top 12 Challenges Facing India in the Decades Ahead – 09 – Taxation

India has a lot of challenges ahead of it whose solution requires capital. Lots of capital. This capital is going to have to come from taxes. But in this regards, India also has a lot of challenges. The most significant of which are:

  • Poverty
    Despite rapid economic growth in recent years, India is still one of the poorest countries in the world as only 15 countries have a lower gross national income per capita. Officially, 30% of the population is below the poverty line as defined by the Tendulkar Committee Report (2009) which clarified the official poverty estimation methodology and set the poverty line at Rs 32 per person per day in urban areas and Rs 26 per person per day in rural areas at 2011 prices, which is approximately 52 US cents in Urban areas and 46 US cents in Rural areas at the end of 2013. This line is so low that it is actually a destitution line that does not ensure anything above bare subsistence. If we use the international poverty line of $1.25 US per day as defined by the World Bank, then almost 33% of the population is below the poverty line and if we define the poverty line at $2.00 US per day, which is barely above subsistence levels in many of the bigger urban areas, then almost 69% of the population is poor!
  • Unequal Wealth Distribution
    The top 1% own 16% of the country’s wealth, and the top 10% own 53%. India has three of the 100 richest men in the world, and the richest man in India is worth almost 22B, while the second and third richest men are worth about 17B and over 11B, respectively. This says the three richest men are worth about 50B in a country with only 1.8 Trillion in GDP and that they alone represent a net worth that is about 2.8% of the overall economy.
  • Import Duties
    India does not charge, or often forgives, import duties on certain types of materials and products that could provide a considerable contribution to the economy, even if the duties were kept low with respect to the rest of the world, and it does a poor job of collecting import duties on some categories that it has stated it will make an effort to collect import duties on. For example, the annual “Revenue Foregone” statement released by the Finance Ministry estimates that India lost RS 529,432 crore (97 Billion) in 2011-2012, or more than 5% of India’s GDP and nearly 67% of total tax collections in India in 2011-2012! (Source: IndiaSpend) This included almost Rs 66,000 crores of customs duties foregone on “diamonds and gold” alone. Any one, or any business, that can afford to buy diamonds and gold can certainly afford to pay a small import duty! And the duty is small — in India, the import duty on gold is a mere 2%! (In the US, the duty and taxes for gold jewelry can be up to 5.5%.)

In other words, India has the situation where:

  • Approximately 2/3rds of its population cannot afford to pay tax.
  • Almost 1/3rd of the remaining population that can afford to pay tax is extremely wealthy, influential, and able to influence the government that sets the tax rates.
  • The government, unwilling to deal with intense complaints or publicity when it tries to collect, or raise, import duties is giving up over 40% of its potential current tax base.

For a country that can’t even address the basic needs of its population, how is it ever going to address its infrastructure, energy, and global economic challenges if it doesn’t stand up and collect taxes where taxes are due?

Don’t blame the lawyers. Blame the bankers!

Recently, listosaur posted the list of the 10 Most Despised Professions in America. According to the list, the most hated profession in America are Members of Congress. SI has to agree with this one as anyone who would shut down a whole country for almost a month over petty party differences deserves a bad reputation, but doesn’t agree with Lawyers being in third place while Wall Street Traders are in tenth. While even the doctor can sympathize with William Shakespeare when he said the first thing we do, let’s kill all the lawyers, the lawyers are not responsible for the current state of the global economy and are definitely not responsible for three of the top four risks as identified in the 2014 Annual Global Risks Report put out by the World Economic Forum.

The people responsible for three of the top four risks, directly and indirectly, are the bankers. According to the 2014 World Economic Forum Global Risks Report, the top four risks are:

  1. Fiscal Crises in Key Economies
  2. Structurally High Unemployment/Underemployment
  3. Water Crises
  4. Severe Income Disparity

1. Fiscal Crises in Key Economies

Many of the fiscal crises playing out around the world are the result of a stock market collapse of one kind or another. Hedge funds, (sub-prime) housing markets, commodity markets, etc. All of which are controlled, and manipulated, by bankers.

2. Structurally High Unemployment/Underemployment

What are the causes of unemployment? While we like to blame job outsourcing, technological advancement, or other trends that tend to displace jobs, the reality is that as old industries decline new industries emerge. In reality, GDP drives employment and unemployment more than other factors that usually get the blame. But the reality is, in the private sector, bankers influence employment and unemployment more than anything else. In a recession, or a slow economy, every hire cuts into profit margins and quarterly numbers, and a company is penalized by the bankers on Wall Street for every penny it is off in its quarterly earnings call. And even as the economy recovers, fearful of hiring too fast and getting penalized by Wall Street, a company will hold off on hiring as long as possible. So even though it is up to the company whether or not it will hire when it has the cash to do so, the fear the bankers install in the company is typically enough to make it hold off as long as possible. Yet again, the bankers’ manipulations of a market are putting us all at risk.

4. Severe Income Disparity

The gaps between the rich and poor are widening every day, and this is threatening social and political stability as well as economic development the world over. And who are the richest people? Typically, wealthy industrialists and bankers. Where do the industrialists keep most of their money? In banks, where it can be manipulated by the bankers to earn those wealthy industrialists even more money. The bankers are making the rich richer and the poor poorer every day.

the doctor will be the first to admit that this is a very simplified view of the matter at hand, but the reality is that, directly and indirectly, the banks have a lot more control over the global economic situation than we should like and their greed is doing more damage and good. We don’t need to be able to measure precisely to tell good from bad. So even if you hate them (and hate them with good reason), don’t blame the lawyers. Blame the bankers. When all is said and done, the lawyers are just a royal pain the in @ss. Bankers, on the other hand …

130 Years Ago Today

Oxford gave us the English Dictionary. Well, it gave us the first volume thereof and we knew the meaning of every word from “a” to “ant”. So, as long as you were anchoring aardvarks to alligators, you were ok but try to alter an appetite, and you were out of luck. And if you wanted to be a zealot for zebras, you had to wait 45 years until the final volume of the first edition was complete! In all, it took 76 years to finish the first edition.

Work has not sped up much since the the third edition of the Oxford English Dictionary began in 1990. Current estimates are that the third edition will no be completed until 2037, 47 years after it began. Updates are being made every quarter to the OED online, with information on the most recent update available on the OED site, and, as per current estimates, will continue to be made quarterly for the next 23 years.

And you thought your Supply Chain Projects took a long time …

Prediction Time Again? Ugh. Part II

In yesterday’s post we noted that back in the noughts, many Sourcing and Procurement technologies were naughts when it came to delivering on their promises, and left a bad taste in the mouth of many earlier adopters, including those that can benefit a company the most. To this end, we highlighted the four examples, in no particular order, of e-Auctions, e-Invoicing, Spend Analysis, and Punch-Outs. Then we asked what are the leading Supply Management companies promoting today?

Today’s leading Supply Management companies are promoting:

e-Auctions

Sophisticated e-Auction platforms that allow multiple auction formats, weighted-bids, preliminary RFXs, custom lots, sophisticated award rules (all, at least two suppliers, pre-defined split, etc.), weighted bids, and even built-in real-time decision optimization. The platforms today are infinitely better than the platforms ten years ago, but the song still sounds the same to the CXOs who signed off on the first generation e-Auction platforms only to get burned in the noughts.

e-Invoicing
Unlike the early point-technology providers, the leading platforms are not selling a single technology point solution and promising you that one-size will fit all, they are selling an integrated platform that can accept invoices from just about any channel you get them from, in almost any format — EDI, cXML, Supplier Network, PO-flip, e-mail/fax to OCR, print-to-Cloud and/or custom dual-entry. Whereas a good e-Invoice solution in the past was successful if you managed to get 90% of the 20% of suppliers who constitute 80% of your spend on-board after a three year slog, today’s solutions can easily accommodate 98%+ of your suppliers out-of-the-box and can be rolled out globally in as little as 12 months! However, the Finance executives who tried the early entrants in the e-Invoice market ten years ago and got burned are once bitten, twice shy.

Spend Analysis

In 2005, BusIQ released BIQ, a spend analysis tool that can be used by anyone to build a spend cube on any spend dataset export(s) anyway they wanted and do so in a matter of hours (for a five figure price tag)! Introducing the concept of layered-rules and mapping by exception, it completely transformed the approach to spend analysis which was, until then, based on sophisticated OLAP cube construction (which could take days, or weeks, depending on the number of rules and the size of the spend data set) and often required teams of Indians in the back-room of your provider’s off-shore support centre frantically mapping the unclassifiable exceptions in the hope enough of your data could be mapped in time to pass the sniff test. But with BIQ, a spend master could build a cube in a few hours, create dozens of ad-hoc reports, and follow her hunches until a unique, and valuable, savings opportunity was identified. Since it only took a few hours (or days) of her time, the cost to explore a hunch dropped from tens of thousands to rebuild a cube to a few hundred dollars, and savings opportunities could be identified quickly and easily. It raised the bar, and pushed a number of providers to substantially improve their offerings while simultaneously decreasing the price. Spend Analysis is something every Supply Management department should do and a tool every Sourcing and Procurement professional should have at their disposal, but since the early adopters typically had to fork over six figures for an ROI that proved to be much less than they expected, these initial early adopters are now hesitant to take a chance on a new solution as they believe that spend analysis is still a “fool me once, shame on you but fool me twice, shame on me” buzzword.

Punch-Outs

Today’s vendors are selling complete, cloud-based, integrated consumer-like shopping portals that integrate punch-out 2.0 instances with buyer-and-supplier catalog management and third-party portals, offering consistent federated search across the punch-outs, catalogs, and portals along with buying-organization price verification, maverick spend detection, and integrated split purchase-order generation. This means that the technology integrates seamlessly, the integration is managed by your SaaS provider, if the price presented by the supplier is not the contract price the buyer is alerted in real time, purchases for off-contract products or products at off-contract prices can be prevented, or at least held until the price is corrected, and each supplier can get their own, customized, purchase order that they can flip back into an invoice (at the push of a button) once the product(s) are shipped. But organizations that got an IT migraine that was beyond their wildest expectations when they tried punch-out 1.0 early in the noughts still fear that there aren’t strong enough painkillers on the market to deal with the cluster head-aches they expect will accompany any new punch-out implementations.

So now you know why SI feels that, for the most part, 2014 will be 2013 part II and 2009 part VI. Until the early adopters get the message loud and clear that today’s technology is truly a decade ahead of its predecessor technology and leaves the problems of its predecessors in the past and until the economy forgets the financial crisis and returns to a growth- and innovation-focussed economy, and not a cost-cutting and market-retention economy, progress will continue to be a slow, up-hill battle and will be limited by the choices of the market leaders.

Prediction Time Again? Ugh. Part I

Why can’t a new year come without all of my fellow bloggers making hopeful, yet unrealistic, predictions about the upcoming year? And why can’t they stop inquiring about mine? Because, the reality is that 2014 is going to be 2013 part II, which was 2012 part II, which was in turn 2011 part II, which was in turn 2010 part II, and which was in turn 2009 part II. Supply Management, like many sectors, has yet to finish recovering since the financial crisis of 2007-2008 and there has been relatively little in the way of game-changing innovation to pull people back to the table, primarily because a lot of the best (and most innovative) solutions on the market that companies should be buying sound like the solutions they bought ten years ago — solutions which never delivered on their promises.

Back in the noughts, many Sourcing and Procurement technologies were naughts when it came to delivering on their promises, and left a bad taste in the mouth of many earlier adopters. Consider the following examples, in no particular order:

e-Auctions

Typically, e-Auctions worked great the first time when the consulting or solutions company was allowed to pick the category the solutions’ company knew would work great (based on current market conditions), but then backfired the second time. When the auction was run the first time, the supply (greatly) exceeded demand, and the buyer was able to cut a lot of fat out of the margin. But then, as the global economy was growing, by the time the buyer got back to the category, supply was constrained, the supplier’s raw material costs were rising, and there was no fat left to trim. Lucky buyers saw a cost reduction of 2% or 3% (compared to the 12% or 23% they saw in the first auction) but unlucky buyers actually saw costs increase!

e-Invoicing

In the early days, Procurement and AP Automation technology suppliers were promising to solve this problem by way of cXML, OCR, or Supplier Networks, each of which have their failings. cXML required the supplier to have a solution that was capable of delivering invoices in cXML, which, in the early days, was limited to suppliers who also used Ariba (who developed the protocol), and as this was a small percentage of the supply base, it was a dismal failure. OCR, which was, and is, still maturing, also proved to be a train-wreck as it failed miserably on poorly formatted invoices, invoices with fonts that were too small, invoices that were hand-written or that had hand-written notes, and invoices that used unrecognized abbreviations — which, combined, were the majority of invoices.

Spend Analysis

In the early days, the tools were very difficult to use, classification and cleansing was even harder, and most companies had to outsource the analysis which often costed high six figures when all was said and done. In addition, since most vendors didn’t understand the operations of the company intimately, or the many ways the different business units categorized their data, and relied heavily on simple auto-classification to speed up the project (and attempt to make it more profitable for them), the classifications were often filled with classification and categorization errors that could only be corrected by changing the rule set and rerunning all the data, which typically took the provider at least a week. And if you wanted to see the data classified (or cubed) another way for comparative purposes, forget it.

Punch-Out

The purported answer to catalog proliferation, all punch-outs did was proliferate their own set of of problems. Just like many AP departments were drowning in paper (invoices), many Procurement departments were drowning in paper (catalogs). Punch-outs were supposed to solve that problem, as all you supposedly had to do was punch-out from your shopping-cart to a punch out to find what you wanted, no catalogs needed. Well, for this to work, the supplier had to support punch-out, the supplier had to have enough technical sophistication to support multiple pricing models (and always apply your contract pricing), and your IT team had to have the technical sophistication to properly integrate your supplier’s punch-out. And then you had to rely on the supplier to actually get the contract pricing right. Did everything go right all the time? Not even close.

And what are the leading Supply Management companies promoting today? Come back tomorrow to find out.