Wednesday, February 11, 2009


Fear, Hope and Greed

There are only two emotions that govern the economic world : Fear and Greed. And there are only perhaps two emotions that work in the political world : Fear and Hope.
How ?
In Economics, we go through phases of fear and greed. If the stockmarket is doing well, people get greedy and make irrational bets. The party continues "till the music stops". Often the question is asked that if the downfall was inevitable to everybody, why did someone not call wolf and get out of the game when the going was good. I believe that the reason why this does not happen is because the cost of being the first to withdraw are huge. You may be the biggest fool to cash out when the chips are good and since no one has really seen the future, it is better to continue playing than give up. It is a little like the global warming debate. We know that the world will eventually become a wasteland but no one is willing to stop their own development for that uncertain distant future. The cost of stopping for a single country are huge. However, if we dont all stop, we are inexorably moving towards the abyss. When however it happens, everybody asks the question - if everybody sway it coming, why did not someone stop. It is the old problem of the commons.

I would like to spend a couple of minutes on the Indian softwae services industry. The industry has made super-normal profits over the last few years. However the fat profits that the IT organisations have made based largely on arbitrage. Over the years, these organisations have become notoriously risk-averse. They have not really invested in creating effective front-ends (domain and sales) in their larger markets. The model of offshoring itself puts pressure to continue to send people from India. This is because an "onsite" assignement is a not-so-subtle part of the recrtuitment pitch. Also, since these companies cannot be the best paymasters in the market, the onsite assignement is willy-nilly projected as a pot of gold at the end of the rainbow. Once that is there, the model itself puts pressure to send Indians to do the jobs onsite. And over years the indians become more entrenched in the western markets largely unwilling to come back (espcially at the higher eschelons). Now I do not want to take away anything from the first generation Indian professionals - they have done a remarkable job but they really cannot be expected to front-end with a Anglo Saxon customer base. Eventually selling has to be local. That is the lessons even American multinationals learned when say they were expanding in countires outside their home country. For example IBM Japan is run by japanese and Indian manages sell sugared Cola to Indians. If the management remains largely expatriate, the customer fails to bond with the company. In the software services domain the customer continues to percieve the Indian vendors as suppliers of cheap bodies. Since this model has served the Indian companies well in the past to bring in 30 % plus growth rates and fat margins, the organisation were never really forced to set up the required front-ends. And front-end not only from a sales perspective but from a domain perspective. (it is not really fair to expect an Indian who has worked in LIC for 3 years to project him as a global insurance domain expert).
So net-net, everybody knows that the model has a shelf-life but nobody is willing to cry wolf and consciously trying to bring it's margins down and fundamentally prepare the organisation for the long haul. They have to realise that the era of super-normal profits will not continue forever. Margins have to in the long run need to be brought in line with global services companies margins. So everybody will continue to dance till the music stops.
Ditto for political dialogue. All broad political pitches fall in two categories : It is either fear (and hatered) for somebody or the hope of a better tomorrow. All great politicians from Lincoln, Hitler, JFK have harped on one of these two enduring themes.

That brings us to the three fundamental human emotions : Fear, Greed and Hope.

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