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Ten interesting things we read this week

Some of the most fascinating topics covered this week are Diplomacy (Podcast: How is space changing Earth?), Brexit (Truly taking back control), Management (Porter's Five Forces is passé?], Technology (Tech giants face new threats from government and regulators), and Health (What disasters reveal about mental healthcare). We also have three India-based articles: 1) PE changes the face of corporate India; 2) India's economic data under a cloud; and 3) Underpaid migrants build new Amaravati

Published: Mar 30, 2019 09:58:45 AM IST
Updated: Mar 29, 2019 04:37:12 PM IST

Ten interesting things we read this weekImage: Shutterstock

At Ambit, we spend a lot of time reading articles that cover a wide gamut of topics, ranging from zeitgeist to futuristic, and encapsulate them in our weekly ‘Ten Interesting Things’ product. Some of the most fascinating topics covered this week are Diplomacy (Podcast: How is space changing Earth?), Brexit (Truly taking back control), Management (Porter's Five Forces is passé?], Technology (Tech giants face new threats from government and regulators), and Health (What disasters reveal about mental healthcare). We also have three India-based articles: 1) PE changes the face of corporate India; 2) India's economic data under a cloud; and 3) Underpaid migrants build new Amaravati.

Here are the ten most interesting pieces that we read this week, ended March 29, 2019.

1) How is space changing Earth? [Source: BBC]
Each and every country wants to explore the space and have their satellites and astronauts there. This podcast throws light on how countries are fighting to dominate the space and create varied records. This podcast is divided into four parts, talking about the feats achieved by four different countries. 1) The East is Red: Qian Xeusen, the father of Chinese space program, launched a fully domestic satellite. It was one of its kinds. China has now put 11 astronauts in space and that puts them in the top. China wants to be one of the powerful countries in this world and space allows it to do that.

2) Fishing by satellite: India has become a major force of launching its own satellites and those of others in low-earth orbit. In 2017, India achieved a world record by launching 104 satellites in one go. This marked India as a reliable launch agency. India’s launch facility is in huge demand now. Mr. D. Raghunandan of Delhi Science Forum says that foreign countries’ agencies and companies like to use India’s launch facility as it is cheaper and they would be able to get these low-earth satellites launched quickly. These satellites are also helping the Indian fishermen by sending them notifications of where to fish for a good find.

3) Pass the knowledge on: In Nigeria, the space tech is relatively new, but still it is talking about sending an astronaut into space. Communication satellites have 100% coverage over Nigeria. And the connectivity due to these satellites is surely beneficial for school children in the country. The country has other satellites too and has bigger ambitions. By 2030, it hopes to have its own astronaut in the space.

4) Reach for the stars: Kyrgyzstan is developing its first satellite, built entirely by female engineers. They have been working on their satellite, and attending workshops by NASA to enhance their space program. They hope to launch their satellite by next year. So the space is giving way to different goals; education, economic progress and human rights.  

2) Who keeps buying California's scarce water? Saudi Arabia [Source: The Guardian]
A Saudi Arabia-based company, Almarai, is feeding their cows by growing alfalfa in Blythe, a small town in Los Angeles. Massive industrial storehouses are packed with thousands of stacks of alfalfa bales ready to be fed to dairy cows in Saudi Arabia. These storehouses belong to Fondomonte Farms, a subsidiary of Almarai, one of the largest food production companies in the world. Each month, Fondomonte Farms loads the alfalfa on to hulking metal shipping containers destined to arrive 24 days later at a massive port stationed on the Red Sea, just outside King Abdullah City in Saudi Arabia. Alfalfa being a water-intensive crop, and Saudi Arabia largely being desert, it has been draining scarce water resources; hence the Saudi government outlawed the practice in 2016.

Though Blythe is a desert, it is adjacent to the lower Colorado river, a river that supplies water to roughly 40 million people and irrigates 4mn acres of land. The state of the Colorado river can be traced, in part, to a water claim approved by the federal government all the way back in the 1800s when a British gold rush-era prospector named Thomas Blythe first laid eyes on the desert expanse adjacent to the rushing Colorado river and submitted a water claim application to the federal government. That water claim, now owned by the Palo Verde Irrigation District, ensures that Blythe has “unquantified water rights for beneficial use”; in other words, as much water as those living and farming within the district could possibly need in this water-scarce region, and for free.

It’s no surprise, then, that Fondomonte chose to set up shop here. While Saudi Arabia has enacted laws to manage their water resources, the US is still governing water based on compacts made in the 1800s – before the western cities had boomed, before suburban sprawl, before factory farming and a global supply chain and, of course, before climate change. Water from the Colorado might be limited, but in Blythe, while they still have it, it’s there for the taking. While it’s hard to then make a clear calculation of exactly how much US water is being poured into alfalfa and then shipped overseas (some evaporates, some filters back into the soil, some is deposited back into the river downstream) it’s clearly not nothing.

3) Truly taking back control [Source: Project Syndicate]
In this piece, Raghuram Rajan, Governor of the Reserve Bank of India from 2013 to 2016, Professor of Finance at the University of Chicago Booth School of Business and author, talks about Brexit and devolution of global governance to national and local communities. Brexit supporters voted to leave the EU in order to “take back control.” Unfortunately, Brexit, in whatever form it takes, may not give them what they want, fueling further resentment. The disempowerment of communities is not a uniquely British phenomenon. As markets expand across political borders, participants prefer a common governance structure that eliminates annoying regulatory differences and transaction costs. Historically, such integration happened within countries. As inter-regional trade and capital flows increased, demands for seamless regional borders and harmonized national regulation became louder. National governments therefore increased their powers and functions at the expense of regions and local communities.

Even as power (and often funding) has moved from local to national and then international level, the effects of globalized markets and technological change have varied greatly. Strikingly, mega-cities have prospered while semi-rural communities have experienced diminishing economic activity and opportunity. Populist nationalist leaders pledge to make their country “great again” by ridding it of the constraints imposed by international agreements and bodies. Of course, as they grab power back from the international arena, such leaders are tempted to resist the further devolution of power and funding to regions and communities. Instead, populist nationalists could turn more dangerously against the international system, presenting their supporters with a continuous parade of external villains to blame for their plight. This is a path that leads nowhere good.

Declining local communities desperately need new economic activity, while their members have to become more adaptable to globalization and technological change. This often requires local engagement and solutions, aided where necessary by national governments. Political parties could play a constructive role in restoring powers, funding, and often health to many communities. Rebuilding a strong sense of positive community identity would likely make adversarial nationalism less appealing. At the very least, when people are more able to shape their own futures, they are less likely to be convinced that others are to blame for their plight. To the extent that it weakens support for virulent nationalism, devolution may make the world a little more prosperous – and a lot safer.

4) PE changes the face of corporate India [Source:]
Many businesses in India are defaulting on their payments and going bankrupt. And this is affecting the present Indian banks as all these businesses owe large sums to these banks. Corporate indebtedness has been rising for years: back in 2012, Credit Suisse published an influential report, titled ‘House of debt’, which noted that 20% of all bank loans over the previous five years were disbursed to just 10 industrial groups, including Videocon and Anil Ambani’s holding group. The bankers and investors are constantly on alert for signs of distress. At the faintest whiff of misfortune or hint of corporate collapse, these predators get ready to pounce. Thanks to a new insolvency tribunal and bankruptcy code, creditors have more clout and a greater chance of recovering their loans, while private equity and distressed debt investors see more opportunities to pick up the pieces.

Where local media once led with tales of incredible India, now front pages are splattered with cases of restructurings, insolvencies and financial malfeasance. Many former high-flyers like Vijay Mallya, Nirav Modi or for that sake Anil Ambani, have turned out to be debt-ridden and are fighting for their lives. That cosy old way of doing business began to change in 2016. Over the course of two months, the government handed final approval to the National Company Law Tribunal (NCLT), which oversees the winding up of insolvent companies, and passed the Insolvency and Bankruptcy Code (IBC), a bankruptcy law that underpins the tribunal’s decision-making. Amrish Baliga, head of financing at Deutsche Bank India, says that there was a “genuine political will to go after defaulting borrowers – something that was previously unthinkable”. This more assertive approach had several root causes.

One was prime minister Narendra Modi, who swept to power in 2014 promising to shake up India’s sclerotic corporates and make it easier for smaller, innovative firms to get credit. Mr. Baliga predicts there will “definitely be a lot more distressed-asset sales” in future. “More companies and assets are being taken to the NCLT, and this opens up a sizeable opportunity for banks such as ours.” This is a tipping point for India’s corporates, and there is no going back. Some of the country’s biggest business leaders will cling on to their best assets – perhaps all of them. But many others, deep in hock to banks and other creditors, and desperate to avoid India’s powerful new bankruptcy court, will turn to private equity in search of capital and a reliable partner willing to turn an ailing asset around.

5) Tech giants face new threats from the government and regulators [Source: The Economist]
Elizabeth Warren, a senator vying to become the Democratic nominee for president, recently suggested breaking up big tech companies, including Facebook, Google and Amazon, and unwinding some of their previously allowed mergers, such as Facebook’s purchases of the apps Instagram and WhatsApp. Why? Because she feels that these tech giants have too much power. Ted Cruz, a Republican senator from Texas, seconds Ms. Warren and says that big tech has too much power to silence free speech and is “a serious threat to our democracy.” Mr. Cruz added that this was the first time he had agreed with Ms. Warren about anything.

Much as Wall Street animated the 2008 presidential election, antitrust will feature prominently in the 2020 campaign. It does not require a sophisticated algorithm to detect a growing unease with big tech firms. This month at South by Southwest, a conference in Austin that attracts many techies, Margrethe Vestager, the European commissioner for competition who has led the way on punishing tech firms for anti-competitive behaviour, asked whether there should be more government intervention against them. Most of the several hundred people in the room raised their hands. Democrats and Republicans may both poke at tech, but they often have different worries. Democrats are more interested in issues of market power and privacy. Republicans share their concerns about privacy, but focus less on antitrust and more on the supposed political bias of firms like Google and Facebook, which they believe suppress conservative views.

The power of these tech giants came to light with the Cambridge Analytica fiasco. But things are changing now. The Federal Trade Commission (FTC), a consumer watchdog, is believed to be nearing completion of its investigation into whether the Cambridge Analytica fiasco is evidence that Facebook violated a 2011 agreement not to share data without consumers’ express consent. The “effectiveness” of the FTC is “is going to be weighed to a large degree by their actions on Facebook,” says Barry Lynn of the Open Markets Institute, a think-tank that argues for more forceful use of antitrust laws. The FTC has also launched a task-force focused specifically on tech firms, which could play a role in unwinding past tech mergers. A big move against a tech giant seems unlikely until after 2020. But even if the elected president does not have Ms. Warren’s enthusiasm for breaking up these companies, there could be pressure to do so.

6) The Netflix game plan to lead entertainment [Source: Livemint]
Netflix has changed the way we see movies, series, and much more. It is one of those innovative companies that have been challenging the traditional ones and grabbing market share in the entertainment industry. It is also breaking the language barrier. “Entertainment has always involved using the latest and greatest technology to tell stories in a more compelling way," said Greg Peters, chief product officer at Netflix. Out of the 7.7 billion people on the planet, only 1.5 billion speak English to some degree and about 371 million are native speakers, Peters said. And yet, historically, the majority of entertainment content in the world has been produced in Hollywood in the English language. The breakthrough in terms of content that could travel globally happened with a Brazilian show called 3% in 2016. Netflix hasn’t looked back since.

There have been many more cross-cultural successes recently, including in India—British comedy-drama Sex Education; South Korean zombie tale Kingdom; and psychological thriller Black Mirror: Bandersnatch to name a few. On the other hand, Indian originals such as Lust Stories and Sacred Games have travelled abroad, CEO Reed Hastings said, adding that he’s also optimistic about their latest drama Delhi Crime. However, content creators in India, at least, don’t see this strategy as entirely new. “As storytellers, you always try to come up with something local first for a primary audience and then see if it can have global resonance with a larger audience. It’s not specific to one platform," said Sameer Nair, CEO at content studio Applause Entertainment.

The streaming site also has its share of challenges. Though Netflix may have 139 million paid subscribers globally, the picture is far from perfect for the company. According to a report by financial content service Seeking Alpha, as many as one in five people today are mooching off of someone else’s account when streaming video from Netflix. In India too, the service allows five profiles to be created on the same account for ₹500. On average, Netflix tends to be pirated for 26 months, and could potentially be losing $192 million in revenue per month from piracy (users who are not paying for access). There is also the issue of increasing competition. The 30-odd video streaming platforms in India together created 1,200 hours of original content in 2018. Apple and Walt Disney are also poised to enter the original content business. While there’s scope for everybody, the audience is loyal to specific shows and characters.

7) India's economic data under a cloud [Source: Business Times]
The credibility of some the Indian institutions have come under question. In a letter titled "Economic statistics in a shambles: Need to raise a voice" and released on March 14, declared that "it is imperative that the agencies associated with collection and dissemination of statistics like Central Statistical Office (CSO) and National Sample Survey Organisation (NSSO) are not subject to political interference and their work, therefore, enjoys total credibility". According to the privately-run Mint Macro Tracker, out of 16 macroeconomic indicators, only four were in the green (above the five-year average) as of January 2019, while eight indicators were in the red (below the five-year average). The performance is much worse compared to six months earlier.

An influential group of 108 economists and social scientists in India and the West noted that the government did not keep to its schedule to release the results from the NSSO's Periodic Labour Force Survey (PLFS) last December. In protest of the suppression, two members of the National Statistical Commission (NSC), including the acting chairman, subsequently resigned because they felt the NSSO was delaying the release of the report, which the NSC had already cleared. Soon afterwards in January this year, the NSSO revealed that the unemployment rate rose to a 45-year high during financial year 2017-2018, in the most comprehensive survey it conducted since the Modi government shocked the country with demonetisation in November 2016. The unemployment rate of 6.1% was the highest since 1972-1973. It was 7.8% in urban areas, and 5.3% in rural areas, in the recent NSSO study.

Since the government never officially released the unemployment data or accepted it, the professors are perturbed by the damage being done to India's image. "For decades, India's statistical machinery enjoyed a high level of reputation for the integrity of the data it produced on a range of economic and social parameters," the professors pointed out. They believe that the government's estimates of recent GDP growth are dubious. With every new release of GDP numbers, more problems with the base-year revision have come to light, they note. The professors are deeply concerned that "the national and global reputation of India's statistical bodies is at stake". More than that, "statistical integrity is crucial for generating data that would feed into economic policy-making and that would make for honest and democratic public discourse", they added. Certainly it’s the upcoming elections that the BJP is more concerned about currently.

8) Pipelines, platforms, and the new rules of strategy [Source: HBR]
In 2007, there were just a handful of mobile manufacturers who dominated the market, but in 2015 iPhone singlehandedly defeated them all to capture the top position. Apple conceived the iPhone and its operating system as more than a product or a conduit for services. It imagined them as a way to connect participants in two-sided markets—app developers on one side and app users on the other—generating value for both groups. By January 2015, the company’s App Store offered 1.4 million apps and had cumulatively generated $25 billion for developers. Apple’s success in building a platform business within a conventional product firm holds critical lessons for companies across industries. Firms that fail to create platforms and don’t learn the new rules of strategy will be unable to compete for long.

Platforms have existed for years. Malls link consumers and merchants; newspapers connect subscribers and advertisers. Though they come in many varieties, platforms all have an ecosystem with the same basic structure, comprising four types of players. The owners of platforms control their intellectual property and governance. Providers serve as the platforms’ interface with users. Producers create their offerings, and consumers use those offerings. The move from pipeline to platform involves three key shifts: 1) From resource control to resource orchestration; 2) From internal optimization to external interaction; and 3) From a focus on customer value to a focus on ecosystem value. These three shifts make clear that competition is more complicated and dynamic in a platform world. The competitive forces described by Michael Porter still apply.

In pipeline businesses, the five forces are relatively defined and stable. If you’re a cement manufacturer or an airline, your customers and competitive set are fairly well understood, and the boundaries separating your suppliers, customers, and competitors are reasonably clear. In platform businesses, those boundaries can shift rapidly. While pure platforms naturally launch with an external orientation, traditional pipeline firms must develop new core competencies—and a new mindset—to design, govern, and nimbly expand platforms on top of their existing businesses.  The failure to transition to a new approach explains the precarious situation that traditional businesses—from hotels to health care providers to taxis—find themselves in.

9) What disasters reveal about mental-health care [Source: The Economist]
In the past two decades care for mental distress in emergencies, whether wrought by conflict or natural calamity, has become an immediate priority—on a par with shelter and food. And what has been learnt from disasters has inspired new, pared-down mental-health care models that can be deployed quickly to help lots of people. In parts of Indonesia, Sri Lanka, the Philippines and elsewhere these models became part of rebuilt health-care systems. They are now being picked up in America and Europe, as people wake up to the scale of mental-health problems and the shortage of specialists to treat them.

As disaster-relief experts wondered how quickly to train local people to provide mental-health care, they realised that, for the most part, non-specialists might be able to do the job. “We used to assume that people need professional counselling,” says Julian Eaton of the London School of Hygiene and Tropical Medicine, a veteran in post-disaster care. But it turned out this was not so. Known as “psychological first aid”, it is something that can be taught in a matter of hours. This training is now standard fare in the first days after a disaster. This approach has also been formalised as a way of preventing post-traumatic stress disorder.

Many countries are embracing this practice of training the non-specialists. As part of an $850m mental-health initiative launched in 2015, New York City has plans to train 250,000 of its firefighters, police officers, teachers, shopkeepers and citizens to spot common risk factors and warning signs of mental illness and respond appropriately. England is a test case for standardised talk-therapy. It has rapidly expanded access to it by training thousands of new therapists to provide a uniform bundle of sessions. In some developing countries the mental-health care models spawned by disaster relief were adopted by primary health-care systems. In rich countries, the need is less dire. But mental-health care is often underfunded and less than a third of those needing it get it.  

10) Mega capital city, underpaid migrant workers [Source: People’s Archive of Rural India]
This piece talks about the long hours of drilling work that contractual labourers go through to earn modest income. And the payments are done for the days of work done; a labourer isn’t even entitled to holidays in some of the areas, leave aside Employees’ State Insurance or the Provident Fund. Most of the construction labourers at Andhra Pradesh's upcoming mega capital city Amaravati are migrants from several states who work long hours for months away from home, earning modest daily wages. The author of this piece encounters a few labourers who have been working in Amravati, the new capital of Andhra Pradesh. Most of the labourers returning home to their village in Dagarua block of Purnia district have worked for big construction companies such as Larsen and Tourbo (L&T) and Shapoorji Pallonji Pvt. Ltd. These companies and others are building Amaravati’s ‘Justice City’ (a High Court campus), houses for MLAs, and an IAS officers’ colony, among other complexes.

The author throws light on how these labourers are brought to work for meagre salaries and are bound to live in tiny houses. Sometimes there are 10-15 people living a tiny house. What they get for a 12-hour shift is just Rs350. Some are working on contractual basis even after years of working at the same site. The workers estimate that around 10,000 people work at the L&T and Shapoorji Pallonji construction sites in Amaravati, all of them from Bihar, West Bengal, Jharkhand, Odisha and Assam. The master plan for the Amaravati Sustainable Capital City Development Project, prepared by a consortium of construction companies from Singapore, talks about creating 33.6 lakh jobs by 2035 and 56.5 lakh jobs by 2050. Chandrababu Naidu, in the run-up to the 2014 elections, promised that he would “provide one job per family in the state.”

So far, the only steady work available in the new capital region is in construction. “Even the little work which is available is contractual. It is not formal employment where labourers have rights and entitlements as mandated by labour laws. This could  be a transition, but the number [of jobs] the state government says it will create is definitely exaggerated,”  says Eric Leclerc, a professor of Geography and Planning at the University of Lille in France, who has been doing research on cities and planning, including Amaravati. But the workers have few other options, and continue with the cycle of impermanent work and seasonal migration, sometimes taking trains back home for the harvesting and sowing seasons.

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