The CEO's back
Lalu's focus on improving passenger experience is brilliant

Like the waking of Kumbhakarna in the Ramayana, and as had been forecast by Business & Economy (March 10-23, 2006 issue), the Indian Railways appears to have finally come to. Late April 2006, a Railway Ministry circular directed the 67 divisional managers across the country to select at least five stations each for upgradation in the next six months. The Railway Board Chairman, J. P. Batra, gave the orders in a meeting gathered to prepare an action plan for implementing the proposals announced by Railway Minister Lalu Yadav (we prefer calling him CEO Lalu) in the 2006-07 Rail Budget.

Lalu says he wants to offer more amenities to passengers, now that Rail-ways have increasingly started making money over the last 12 months. In all, 400 railway stations are to be modernised and equipped by the end of this year, with facilities like ATMs, cyber cafes, ticket reservation through SMS, better electronic signages, and public address systems. The New Delhi railway station is one of the stations selected, and is expected to be modernised much ahead of the 2010 Commonwealth Games. To make things easy, the Railway Board has allowed divisional managers to sanction projects up to Rs.30 lakh (up from Rs.5 lakh) & given them autonomy to select architects to modernise stations.

It is true that railway stations in India are more like open prisons. Barring the fit male, everybody else has a tough time negotiating the crowds, barriers, stairs, and platforms before jostling their way to a berth. Access is unfriendly, seating is non-existent or hard as nails, washrooms are a desperate need, and so on. The atmosphere is hostile, and people corrupt. All this makes Lalu's modernisation attempts quite welcome; and most highly appreciated as one must not forget that this focus on passengers is despite the fact that almost 80% of revenues of Indian Railways is contributed by freight. Well, Lalu is very intelligent; freight never earned anybody votes, did it?

A Pretty Coal'd Response, isn't it?
The Law Ministry's decision should be reversed at the soonest

After the bold step that he took during the budget session, P. Chidambaram must be a very disappointed man now. With the Law Ministry's decision of disallowing sale of coal to third parties other than approved end users (steel, cement and other infrastructure industries constitute the 'approved' list), the Ministry has not only demolished the efforts of the Finance Minister (FM) to redefine captive blocs in India, but it has also shut psychological doors for foreign investors planning to invest in Indian mines.

FDI up to 100% had been allowed in captive blocs after the FM had tried to give a new lease of life to the coal mining sector by proposing de-reserving of sale of 20,000 billion tonnes by coal mining firms to non-approved companies with 'firm supply contract with steel, cement and power companies'. And when coal constitutes almost 70% of the fuel necessity of the country, Chidambaram's move was most apt and appropriate. Had the FM's initiative fructified, it would have allowed end users to start JVs with FDI participants in order to integrate backward into coal mining; thus encouraging not only captive sourcing of this key raw material, but also profits from sale to other third parties; especially as the coal sector has been regularly unable to meet the ever rising demand in India.

But now, with the Law Ministry's diktat prohibiting such sale to third parties, even after the heavy cost that these JVs might bear for investing in mining, the produce left after self consumption would go waste. At a time when coal prices are expected go up, the Law Ministry's decision has done more bad than good for the growing Indian economy. Not surprisingly, the government and certain coal mines are planning to approach the Attorney General for redressal. As soon as possible, the Law Ministry should reverse its coal'd response.

The Xing Sting

Love them, loathe them, but you can't ignore them. Hyundai Group Chairman Chung Mong-koo is the latest entry to a growing list of fraudulent CEOs that dupe investors of hard earned money. Repercussions are already being felt across the globe. Clearly, companies in one part of the world can't remain unaffected by developments in another part any more, can they?

Why should Shah Rukh Khan be worried if a gentleman called Chung Mong-koo is arrested in far way Seoul in South Korea? Well, the link is between the Zing thing and the sunshine car Santro. Chung Mong-koo happens to be the Chairman of the Hyundai conglomerate - Asia's largest automobile manufacturer - and has been arrested by South Korean authorities on charges of bribery and embezzlement. If the scandal escalates and Hyundai does unravel as a result of this, Shah Rukh Khan will end up losing his lucrative endorsement contract for Hyundai cars! At the moment, the very thought of Hyundai India - the number two car company in the country - getting into any kind of serious trouble does appear outlandish and far fetched.

Yet, those who laugh at the suggestion that Hyundai could possible get into trouble need to go back a few years when another South Korean chaebol Daewoo collapsed in a sea of scandals. At that time, both the cars from the Daewoo stable, Cielo and Matiz, were doing very well in the Indian market. In fact, many analysts had positioned Matiz as the car that, along with Hyundai Santro and Indica, would give market leader Maruti a run for its money. Yet, Daewoo's collapse in South Korea ensured that both Matiz and Cielo disappeared from Indian roads, so to say. The early reverberations of the arrest of Chung Mongkoo are already being felt globally. Hyundai affiliate Kia Motors has already scrapped plans to build plants in Thailand and other South Asian countries.

Hyundai Motors has also postponed the construction of a $1 billion spanking new plant in Czech Republic. In a related announcement, affiliate Kia Motors said that it is also postponing a $1.2 billion investment to be made in Georgia, USA. This has already spread some alarm across the world. The Czech Prime Minister Jiri Paroubek has publicly announced that he will fl y down to South Korea and convince Hyundai to go ahead with the project that promises to generate over 15,000 local jobs in the Czech Republic. Before and after his arrest, South Korean prosecutors have been besieged by pleas, requests and demands from affiliates, suppliers, dealers, employees and even many South Korean analysts to go easy on Mong-koo as the future of the second largest South Korean conglomerate after Samsung is at stake. And South Korea cannot really afford a repeat of the Daewoo fiasco.

Chung Mongkoo is widely recognized as the driving force behind the formidable growth of the Hyundai group in the last decade or so with a successful (till now that is) game plan to become the world's fifth largest automobile company by 2010. Although concerned, South Korean prosecutors claim that the evidence against Mong-koo is so compelling that they are helpless. Said senior public prosecutor Chae Dong Wook, "We must accept the notion that in order to make our nation an advanced economy, it is a life or-death task demanded by the times to secure transparency and credibility for businesses." Incidentally, Mong-koo's background is not a saving grace either.

His father, and founder of Hyundai, Chung Ju-yung, was also indicted for embezzlement and bribery way back in 1993! Even more interesting, a then young Chung was arrested in 1978 for bribery to be released in double quick time to take Hyundai towards greater glory! There are chances that these reverberations spread even farther. Auto exports of Hyundai and affiliate Kia account for more than 10% of the total exports of South Korea. Any escalation of the crisis at Hyundai and the entire South Korean economy could face a problem. Of course, policy makers in the country are putting up a brave front. Said the South Korean Finance Minister Hang Duck Soo, "Chung's arrest would inevitably have some impact on the economy, but it won't be that huge."

As far as Hyundai's India operations are concerned, most analysts seem to think at the moment that there is nothing to be worried about. Says auto analyst Shapur Kotwar, "I don't think it affects and apart from bankruptcy or any such thing, it does not affect customer perception." Surely, ex-CEO B. V. R. Subbu's most recent exit from Hyundai (on March 24, 2006), and even that of Hyundai's marketing manager Sanjeev Shukla (who has joined Hero Honda on April 28, 2006), would seem just a mite too coincidental to accept. Without doubt, there is no immediate danger of the house of Hyundai in India collapsing like a pack of cards. But then, even the other conglomerate Daewoo was a powerful and rapidly growing corporate entity in the 1980s and 1990s.

With a strong presence in automobiles, construction, electronics, equipment et al, Daewoo was touted as one of the multinationals of the future. Yet, the currency crisis that hit South East Asia in 1997 revealed deep cracks in the Daewoo Empire, eventually leading to its virtual collapse. General Motors took over Daewoo's global auto business; but the deal shortchanged the Indian operations, with the Tata group buying over some of the assets of Daewoo India. As a result, two cars that were quite popular with Indian consumers ceased to exist almost overnight. It has been almost six years since Cielo & Matiz rolled out of Daewoo factories. The message is very loud and clear.

In this era of globalization, what happens thousands of miles away to a company can immediately and significantly affect the plans and prospects of a company based in India. Tata Motors is another good example of how this can happen. After years of struggle, Tata Motors managed to find a European partner in Rover, UK, to launch the Indica car in the continent. The two inked a major agreement in 2004 that would lead to Rover selling the Indica as City Rover in UK and continental Europe. For Tata Motors, this was a win win situation as it would not have to invest heavily to set up a marketing infrastructure in Europe. Unfortunately, Rover collapsed in 2005; and so did the plans of Tata Motors. Those are not just corporate entities that need to be watchful of how global developments can affect their prospects and their future.

Even gold plated management professionals probably need to keep the Google News website open for unexpected news and developments that can move the ground beneath their feet. The most celebrated and notorious example of this is what happened to one of the top consulting firms of the world - Arthur Andersen - after the spectacular collapse of Enron in 2001. Arthur Andersen was advisor, consultant and auditor to Enron, one of the fastest growing and most powerful corporations in the US during the 1990s. Yet, when Enron crashed in a blaze of scandalous publicity, it ensured that Arthur Andersen too went down with it. For scores of highly paid management consultants working at the Andersen India offices, life was a nightmare of uncertainties till the India operations were merged with Ernst & Young (and many employees were hired en masse by KPMG too). Their jobs were saved; but there are thousands of jobs that will go when similar things happen...