These industries are interested to know where the disposable income resides by geography, occupation, age, income group and so on, so that they are better able to target their products, sales efforts and marketing campaigns.

Long term trends in demographics, income distribution, sector growth rates, regional growth rates, etc. are therefore of interest to them.

Going a step further, it is also interesting for them to know if there are temporary spikes (or drops) in disposable income. For instance, in India, the Sixth Pay Commission is a much discussed event, as it will lead to an increase in disposable income in the hands of the beneficiaries, the central government employees. Their pay scales have been revised with effect from 2006, and they expect receive the arrears in installments.  They are attractive prospects for the above industries.

Other events that have a similar impact on spending power are land acquisitions, either by the government for building roads, bridges, industry parks, etc. or by builders for developing large townships. The recipients in these cases are generally farmers.

Certain industries also get windfall gains once in a while, as a result of changes in exchange rates, commodity prices, government regulations, etc.

In agriculture, there are smaller spikes on a regular basis. The variability in agricultural incomes arises from variation in area under cultivations due to weather, prices, availability of inputs, etc.; or variations in yield due to irregular monsoon, outbreak of diseases, floods, etc.  Macro level performance of agriculture is often widely reported, but even in a “bad” year, there are small pockets of abundance. And these could be of interest to companies as they can target their sales efforts in the “right” areas rather than spreading them thin across the country.

Of course, not all of the above may be worth tracking. Organisations need to balance the impact of the event for its business, and the effort required for monitoring the event.  For instance, the weak rupee has delivered windfall gains to many, but it is perhaps not worthwhile trying to identify them as they are scattered, and hence hard to target.  Monitoring of regional patterns in agricultural incomes is possible, but could be a little bit painstaking as the information is dispersed.  Land acquisitions, on the other hand are limited in number,  impact concentrated groups of people, and are relatively easy to monitor.

What are other sources of spikes in disposable incomes you have noticed?

All new trends/ patterns/ macro changes in  technologies, society, economy, etc. start with small shifts in opinions or behaviors . Weak signals are these faint indications of macro changes that are poised to take place in future.

Weak signals are of tremendous value to competitive intelligence analysts, as they allow the analysts to anticipate what the future will be and hence caution the organization to proactively prepare for it. The company that recognizes the trend first, stands to gain advantage over its competitors.

Of course, it is hard to know whether a particular shift in behavior is a true signal of the future or just an random anomaly. Either way, a CI analyst cannot ignore a weak signal and may want to follow it till she can ascertain whether the change will die out or persist. If she does catch a major trend before everyone else, it could turn the fortunes of her organization. On the other hand, missing a trend could mean huge losses for the organization. Remember what Nirma did to HLL? And recently, what happened to Nokia?

So how can a CI analyst work to increase the chances of hitting this jackpot?

To start with, she must acknowledge the fact that it is possible to anticipate the future by looking for signals of change.  A successful trend-watcher must have a passion for it.  She needs to have her antennae up and eyes and ears open at all times, to minimize the chances of missing patterns and trends.

Additionally, she needs to monitor all the relevant places for picking up signals – such as blogs, news, magazines, publications, and other social media. It doesn’t hurt if she is open to surfing a few not-directly-relevant places too, as one sometimes finds clues in the most unexpected places. For long term trends, she will need to monitor demographic information, economy, political landscape and new technologies.

It is very important that she constantly communicate with people within and outside the industry – talk to industry experts, hang out with smart people, attend events and share information and insights with them. Particularly in India, with low internet penetration and low quantum of published data & information, there is absolutely no substitute for networking and socializing to pick up clues and views.

Finally and importantly, the analyst needs to have and open mind and be fearless in looking at all possibilities. Many  times organizations tend to ignore signals that threaten the current status quo or are uncomfortable for the organization!

“The future is already here, it’s just unequally distributed” – William Gibson

According to the ISI emerging markets database the calendar year 2011 saw M&A deals in India fall by more than 50% over the last year, as only 195 deals were announced.  Compared to this nearly 400 deals were announced in the calendar year 2010. Even the net deal value fell to ~USD 18bn as compared to ~ USD 45bn in the previous year.

The biggest deal of the year was British Petroleum taking over 30% stake in 23 oil and gas blocks of Reliance Industries Limited for an aggregate of USD 7.2bn, followed by Tata Steel selling its 26% stake in Australian miner Riversdale to Rio Tinto for USD 1.1bn. Other big deals included Bain Capital and GIC, the investment arm of the Government of Singapore buying a 30% stake in Hero Investment (P) Ltd, which owns 17% of Hero Honda Motors for USD 0.8bn and Piramal Healthcare purchasing ~5.5% of the issued equity share capital of Vodafone Essar Ltd from ETHL Communications Holdings Ltd for a cash consideration of USD 0.6bn.

Out of the total deals announced this year, 95 were domestic deals amounting to a deal value of ~USD 4bn, 38 were outbound deals where Indian companies acquired a foreign target (deal value ~USD 3.5bn) while 50 inbound deals saw Indian companies being acquired by foreign firms (deal value ~USD 10.5bn). Biggest decline was in inbound deals where they fell by ~65% in comparison to the last year.

Deal breakers

As the actual performances have tended to swerve from the projections estimated by the companies and Investment bankers before the start of the takeover transactions, buyers are getting more and more jitterier and due diligences have become much more rigorous. Because of this M&A deals are now taking much more time to conclude.  The Sensex has declined by nearly 20% this year, as FIIs sold USD 500m worth of Indian equity. The economic growth estimate by the Government has been pulled down to around 7.5% from earlier projections of 9%. Even the Indian rupee has fallen by more than 15% since June 2011 making outbound deals a challenge. The debt crisis in Europe, along with the US financial woes has also cast its gloom on the Indian markets. To add to it the current high interest rates in India are making, funding an acquisition very difficult. All these factors are really compelling the players to adopt a wait and watch policy.

Fingers Crossed for 2012

Looking at the current scenario, I think we’ll really have to keep our fingers crossed for the next year. While some courageous mid-sized Indian organizations might still scout around for small strategic overseas buyouts, the next year could see most Indian companies cutting back on overseas acquisitions (Thermax and Marico have already postponed their M&A plans). And as there will be uncertainty in both the outbound as well as inbound markets, the coming year could see a fair amount of increase in the percentage of domestic deals. But we will continue to see some amount of interest in inbound deals in the next year as the western world continues to be seduced by the ‘India growth story’ and for most of them the option of not being in India does not really exist!

World  economies are so intricately interconnected today, that it is not possible to talk about the business climate in India in isolation. And most of the rest-of-the-world is not expected to do too well next year. A possible collapse of the Euro zone is a scary prospect, but it cannot be dismissed. The US is doing a little better, but not enough to bring cheer.  Even the emerging economies such as India and China are faltering, though less so, than the developed countries.  Uncertainties in one part of the world are propagated globally in form of market sentiment and this in turn affects the “real” economy.

In India, in addition to the economic slowdown and inflationary pressures, the political situation is contributing to the lowering of business sentiment. The policy inertia of the government and its inability to “manage” politics to push ahead with the reforms agenda is the single largest cause for low business and investor sentiment.  Politics has become more critical for Indian businesses than it has been in the last few years.

What does this mean for companies in India? First, they will have many more developments and areas to keep track of. Early warning competitive intelligence will therefore become increasingly important.

Second, they will have to work harder to maintain their top lines and bottom lines. And what does working harder mean? It means coming up with smarter and better (than the competitors) strategies for raising funds, selling their services, delivering at a lower cost, and so on.  Superior competitive intelligence is certainly one of the ingredients required for this.

Ensuring that there are enough resources for the increased level of CI that will be required, will be tricky, as companies are likely to go into a cost-cutting mode. Further, it is always harder to establish the ROI for early warning CI than for strategic CI.

CI practitioners will therefore have learn to do more with less. While items such as travel and conferences may find less place on their agendas than before given their budget constraints, they cannot afford to cut down on hardcore CI. They will need to work smarter, faster and produce better analysis than before. Since CI is a new discipline in India, they will need to move up the learning curve very fast. Luckily, the SCIP India Chapter has been formed in time to facilitate interaction and learning.

What do YOU think 2012 will bring for CI in India?

Strategy formulation (and planning) is undertaken at least once a year in most organizations; and more often than that in some organizations.  Strategies are devised for navigating obstacles and challenges to reach the desired business objectives/ goals. However, if the key obstacles and challenges are wrongly identified, how can the strategy hope to succeed?

Typically, organizations have a myriad of challenges… Competitors are coming up with new offerings in a market segment and we don’t have a competing product there. Certain geographies are growing faster than others. New technologies are emerging. The government is planning to tighten the regulations in the industry. Consumers preferences are changing. Production costs are rising. Labour problems are brewing. Two key executives in the marketing team have left. There could be many more…

But which of these are the critical ones that we need to focus on – to ensure that we meet our goals in the coming year? While all “weak” areas of business need to be addressed, business strategy needs to focus on the critical ones that will ensure success. Strategies that try to address all the areas are rarely successful as both, the focus and efforts are diffused. Management needs to pick the areas that will contribute the most to achieving company objectives.

If the diagnosis of critical areas is wrong, the organization will fail in achieving its objectives, irrespective of the strategy adopted.

This has significant implications for competitive intelligence (CI). Since the success of competitive intelligence is measured by the success of the strategies that are derived from the CI, ensuring that the diagnosis is accurate also becomes the responsibility of CI practitioners.  For example, the business expresses a “need” for benchmarking its pricing strategy vis-à-vis its competitors, as it is losing market share.  If the loss of market share is actually on account of better product design of the competing products, no amount of price adjustment will help sales.

CI practitioners then, cannot take the “problem statement” as given. They are duty bound  and it is in their own interest to ensure that the problem statement itself is relevant to the organization’s objectives. They need to be  involved in formulating the CI need.

What are your views on the boundaries of the competitive intelligence function?