Monday, November 3, 2014

Alibaba Hits the Ground Running...And Now Come the Forty Thieves

The name ‘Alibaba’ has come into common parlance since the giant e-commerce company’s NYSE IPO on September 19, 2014. BABA’s $231 billion market value on its opening day may well have heralded the advent of Asian e-commerce on the world-stage.  Playing a distant second-fiddle to China’s BABA is the nascent but improving e-commerce stage in India: Playing Forty Thieves to China’s giant BABA.

Japan’s SoftBank is the latest to invest in India’s fledgling e-commerce market.  Plagued by weak Internet penetration; red-tape; lack of band-width; a haphazard economic strategy; widespread mistrust of e-commerce; weak penetration of credit-cards; and general economic malaise, India has been a perennial also-ran in e-commerce.  But that is beginning to change.  With a new single-party majority rule in Parliament under Prime minister Narendra Modi, India is beginning to shrug off its shackles and turn the corner on virtual trade. Softbank recently agreed to invest $627 million to become the largest shareholder to Jasper Infortech, Pvt. Ltd., a Delhi e-commerce firm that owns Snapdeal.com. Softbank is also said to have pledged $10 billion to India’s technology sector since the ascendancy of Modi to prime minister.

Online retail currently constitutes only 0.4% of India’s retail industry.  With 1.3 billion people, even if e-commerce takes 3% of the retail market in India by 2020 that would translate to sales of $32 billion a year (e-commerce in the U.S., by way of comparison, is expected to hit 10% of retail by 2017, and earned approximately $262 billion in 2013).  Snapdeal, India’s largest e-retailing platform, and the closest thing to China’s Alibaba, has 50,000 retailers and earned approximately $1 billion in revenues to Alibaba’s 362,788 retailers and $8.6 billion in revenues last year.  However, 99% of Alibaba’s retailers are based in China itself, a profile that is eminently comparable to that of Snapdeal in India.  Furthermore, one of Snapdeal’s investors, Temasek Holdings, the Singaporean sovereign wealth fund, was an also an early investor in China’s Alibaba.  So, in many ways, India’s e-commerce trajectory is following that defined by China a decade or so ago.  But it may not take India a decade to catch up.  Here’s why.

Exposure: Unlike China’s draconian censorship of both social media and news channels, the spigots for information flow in India are wide-open.  For instance, India is expected to have more Facebook users than any other country by 2015.  According to Socialbakers, a social media analytics firm in London, in 2012 India had close to 46,307,580 Facebook users. This made India the third-biggest Facebook market, behind the U.S., then at 156,830,580 users, and Brazil, with 48,041,640. According to Eleanor Armitage, a PR representative for Socialbakers, the number of Indian Facebook users is growing 22 percent every six months, meaning that India will edge out the U.S. toward the end of 2014, when both countries are expected to have 170 million to 175 million members.  And remember, this is with only 17% Internet penetration in India compared to 44% in China and 87% in the United States.

Mobile Users: Facebook’s ad revenue in the third quarter of 2014 was nearly $3.4 billion, a large share of which came from mobile ads.  As worldwide ad revenues grow for Facebook, so will revenues for Facebook, India; and a large share of these ads will come from fledgling e-commerce ventures.  Furthermore, younger age groups (18-34 year olds) represent a whopping 76% of Facebook users in India.  Since opening its first office in Hyderabad, India, Facebook has actively targeted cell phone carriers as cell phones are far more ubiquitous than computers and Indians have a propensity to connect to anyone or anything that piques their interest on social media.  Democracy and plurality can sometimes be a bane to progress.  In this case, though, while consensus and compromise remain heady and dangerous concepts in China, freedom of access brought about by principles of plurality and democracy in India are paying huge dividends.  Access yields knowledge; knowledge fuels desire; desire leads to enterprise; enterprise generates  commerce; and Facebook, Twitter, and such provide part of the platform for e-commerce in India.  India’s e-commerce scenario is the metaphorical forty thieves operating in guerilla-like fashion to China’s giant Alibaba.

Smartphones: Local smartphones sell for the equivalent of $70 in India.  However, bandwidth is expensive.  Thus, they are often used for no more than basic phone calls and are seen more as status symbols for their potential to connect to the Internet instead of the reality of making such connections.  But that is beginning to change; and change in the Indian context often follows a tsunami-like geometric progression.  Just as India leap-frogged over a legacy landline system that was a remnant of the British Raj to the ubiquity of modern-day cell phones, the use of affordable smartphones and the coming band-width expansion promise to change the Indian e-commerce landscape in the near future.  According to Anandan, a former managing director of Microsoft - India, and now with Google, “The investments we are making in India far exceed anything we can see for the next several years.  Everything we are doing is about how we scale the internet to a larger number of Indians, and how do we make it more useful. And then eventually monetisation will happen.” Google expects the Indian e-market to explode with the growing popularity of YouTube; and a lot of the YouTube videos may well be subscription-based and watched on smartphones in India.  Now imagine 750 million people simultaneously watching a one-day cricket match on their phone screens.  Imagine the mobile ads running at the bottom of their smart screens.  Now imagine the remaining 350 million watching Bollywood’s productions on YouTube.  More importantly, imagine a sizable number of these people taking out paid subscriptions to specific channels.  Were India to fix its bandwidth infrastructure to satiate the coming demand, it may well leap-frog over both the United States and China in its capacity to monetize and its volume of e-commerce.  And it will do this not based on one or two Baidus or Alibabas, but a whole slate of entrepreneurs and small businesses that will find their own platforms on smartphones and tablets…playing forty thieves to China’s giant BABA.

But it is not all rosy for the prospects of e-commerce in India.  Bandwidth infrastructural weaknesses will continue to plague India for the foreseeable future unless Mr. Modi’s government makes serious efforts to overcome the log-jam.  But India has done it before.  In my youth it took over twenty years to go from ordering a landline telephone to actually getting a connected line.  And then it often did not work.  People ordered scooters in the names of grandchildren yet to be born to children yet to marry.  India, though, leap-frogged over these infrastructural bottlenecks by strategically opening its economy to private and foreign enterprise.  It could do it again to address its band-width woes and virtual infrastructural inadequacy.  And it will need to do it soon, not only to improve its connectivity to the world but because internet-related virtual infrastructure is easier to address than physical infrastructure like roads, railways, flyovers, etc.  One of the ways that India can compensate for its physical infrastructural limitations would be to have a strong virtual infrastructure for the Internet.  This will not only aid in promoting B2B and B2C commerce; but will allow India to get beyond its notorious license-Raj and make people-to-government communications and enterprise easier.  There are already early signs of success in states like Gujarat, Modi’s home state, where e-government is both commonplace and efficient.  Now Modi and his party have to find ways to replicate Gujarat’s successes to the rest of the nation.

Were India to leverage its open system of government and principles of plurality and free enterprise, it may well catch-up to and even surpass China in e-commerce over the next decade.   The lack of censorship and the free flow of information in and out of India will bring concomitant advantages in the form of new ideas, new platforms for e-enterprise, and India will emerge a global powerhouse of e-commerce with trillions of transactions offering a complement to China’s equally burgeoning e-commerce platforms…offering up a full complement of forty thieves and more to China’s giant Alibaba.  

The next fifty years of commerce, E- or otherwise, belong to Asia.  That much we know.  The question is which nation, on either side of the mighty Himalayas, will dominate this new form of enterprise.  Current money rides on China.  But India may well prove the dark horse in the marathon that has just come on.  India playing forty thieves to China’s colossal BABA.

Sources used for this Blog:











Friday, September 12, 2014

Break on Through to the Other Side





This month’s blog pertains to hacking.  The most recent victim of the Russian-Ukranian consortium of hackers, the ‘American Sanctions,’ presumably in retribution to U.S. sanctions against Russia, is Home-Depot.  With 2,200 stores as opposed to Target’s 1,800, analysts now fear that the scope of damage from the Home Depot attack may exceed that against Target last year.  P.F. Chang’s has been a recent victim; as has J.P. Morgan Chase.  The Wall Street Journal, the Business Student’s Bible, reports that Healthcare.gov, the Federal Government’s massive Affordable Care Act site, was also hacked. We appear to be powerless to guard against these attacks.  Are we?

Cyber-attacks appear on a spectrum with DDOS (Distributed Denial of Service) attacks defining one pole; and wholesale pilferage of data via cyber break-ins defining the other.  DDOS attacks are designed to mainly overwhelm the target’s servers.  Here, remote computers are commandeered by the perpetrator, sometimes thousands of them, and then on a given date and time they begin to ‘ping’ the target servers simultaneously to a point where the target becomes overwhelmed and the site is said to ‘go down.’  While this may be very disruptive to e-commerce websites such as eBay; Google; Amazon, etc. (companies that interface with retail consumers on the Internet and/or have a high volume of traffic), they are not as dangerous as the outright pilferage of consumer or credit-card data.  DDOS attacks and the outright hack of confidential data also define a chronological timeline in that DDOS appeared on the cyber landscape a decade or so before the now ubiquitous hacking of consumer and credit-card data. Where do we go from here?

Cyber-security experts have attributed some credit-card data theft to point-of-sale (POS) vulnerabilities emanating from the use of magnetic-strip credit-cards.  Credit-cards in the USA have lagged their European counterparts where embedded chips are more commonplace.  Unlike the magnetic strip, the chip does not contain either credit-card or consumer data.  The technology requires the POS terminal to communicate with the chip via encryption and the transaction is authenticated by an externally entered pin (personal identity number) that is only known to the consumer and the bank.  Therefore, there is no data, per se, that can be stolen off the credit-card via the use of black-market card readers or writers that forge the original card.  France is said to have reduced credit-card theft and forgery by up to 80% since the introduction of the chip-and-pin technology back in 1992.  

Why have we been laggards?  Because upgrading POS terminals costs money and credit-card companies and their clients have kicked the can back and forth on the issue of who pays for upgrades.  There are also cost-benefit analyses undertaken by both credit-card companies and their clients regarding the cost of making upgrades versus the financial/reputational liability that one may incur from POS data theft.  One has to wonder whether it would have been cheaper for the likes of Target and Home Depot to have upgraded their POS terminals to chip-and-pin technology in light of the operational and reputational damage incurred from the well-publicized hacks of their systems in the media. More importantly, would that have been enough?

It is important to note that not all credit-card data pilferage occurs only at the POS location.  In a time of big data and companies’ quests for learning molecular details about their consumers, their preferences, and their purchasing patterns, companies are collecting and mining more data-points and volume; making their data repositories attractive targets for hackers.  Thus, while the new Apple Watch and iphones may well facilitate more secure retail transactions via the use of Apply-Pay, which is really a variant of the chip-and-pin technology, Apple and others remain vulnerable to hacks of iCloud and server data.  Hence the recent hacks of celebrity nude photographs; Chase and Home Depot data; and the aforementioned attack on the Federal Government’s HHS site.  “The average total cost of a data breach to a company increased 15 percent this year from last year, to $3.5 million per breach, from $3.1 million,” according to a joint study last May, published by the Ponemon Institute, an independent research group, and IBM (Russian Hackers Amass Over a Billion Internet Passwords, By NICOLE PERLROTH and DAVID GELLES, New York Times,  AUG. 5, 2014). We always seem a step behind the Sisyphean tenacity of hackers, be they local; Chinese; or East-European.  How can we combat this epidemic?

Part of the solution lies in unleashing technology against technology.  Hence, credit-card companies in the USA are already beginning to roll out chip-and-pin cards and related technology at long last.  2015 will see a full host of such cards enter the retail US economy and POS hacks will probably witness an immediate drop from here on.  Technologies such as Apple-Pay and others will also help combat POS theft of consumer data.  CNP (Card-Not-Present) vulnerabilities that characterize telephone, internet, and mail-order transactions are also finding relief via the use of multiple-factor techniques.  Hence, lost password requests today are more commonly handled via a one-time challenge issued by the bank or credit-card company that is sent to the consumer’s mobile phone or email address.  The consumer is then asked to respond to the challenge by inputting the unique code issued by the bank prior to being allowed to commence a password change or initiate a transaction.  Many sites do not allow for the reuse of passwords, and passwords themselves are required to be more complex requiring combinations of alphabets, numbers, and unique codes.  Data repository servers, be they proprietary or commercial in-the-cloud, are layering firewalls and deploying ‘honeypots’ to both distract and generate audit trails back to the hackers.  But hackers tend to be sophisticated and well-versed in the art of covering their trails.  So the attacks have kept coming.  What more can we do?

This is where training and education enter the frame.  Black Hat and Def Con recently concluded their annual conferences in Las Vegas.  Insights from the venues: companies do not like public disclosure of their systems’ vulnerabilities; and the need for training in the art of ethical hacking.  In other words, pay an ethical hacker to hack into your system before an unethical one gets hold of it.  A third lesson: stop treating the system as if it were a black-box.  To date most of us monitor what we input into the system; and what the system outputs us.  But we remain blissfully unaware of, and therefore, vulnerable to not knowing what happens in the ‘black box’ of the system itself.  Sancta Simplicitus! That needs to change.  And some of it is already beginning to happen.  This year Def Con ran a DefCon Kids camp that challenged children in the art of lock-picking and ethical hacking.  Universities too are getting into the act.  Cleveland State University and Case Western are among the first in the nation to explore curricula in the art of ethical hacking (see: http://lakeshorepublicmedia.org/stories/want-to-learn-cybersecurity-head-to-def-con/). 

We, at STU, should position ourselves to explore a joint program in CIS, computer science, and criminal justice to develop a unique undergraduate major that addresses the complex issues of cyber-security.  This program will train students to enter the so-called ‘black box’ of systems to explore their strengths and vulnerabilities.  It will be yet another component of the School of Business’, and the University’s, efforts to graduate students who are immediately employable.  Cyber-security concentrations in our MBA/MSM programs will help imbue graduate students with skills that are in demand (see the Beacon Council’s One Community – One Goal initiative on Information Technology).

It is time that we address cyber security from the inside.  We need to examine the very entrails of the increasingly ubiquitous systems that surround us.  Ethical hacking anyone?  With apologies to the Doors, and misquoting deliberately and in a totally different context, it is time for us to Break On Through to the Other Side.  

Let me know your thoughts. Post below. Post often. And Post copiously.

Thank you.

Som Bhattacharya
Dean & Professor of Accounting
School of Business
St. Thomas University.

Friday, August 8, 2014

Welcome; the Ex-Im Bank (Should it Stay or Should it Go); & The Art of Presence











Welcome

As we embark upon Fall 2014, let me take this opportunity to extend a warm Welcome Back (and simply A Big Welcome to some) to our students, their parents, prospective students, faculty, staff, alumni, and the Business Board.  Gear up! A full year of learning and intellectual enterprise lies ahead.

Like you, I am excited to be here.  We are embarking on what I believe will be an impressive next few years of growth in students and programs in the School of Business.  Ours will be a world of mainstream business education punctuated by strategic forays into niche areas.  Hence, our Masters of Accounting has a forensic accounting concentration; we will elevate Marketing as an undergraduate major in its own right; Entrepreneurship will play a large role in our curriculum; and we are one of only a handful of schools that award undergraduate degrees in Sports Administration.  At the graduate level, our online partnership with Hotchalk (www.hotchalk.com) continues to take shape.  As we revise our online curricula, spillover effects will also help revamp our in-class and hybrid graduate courses and experiences. 

Our forays into niche areas beyond mainstream majors and concentrations reflect our efforts at keeping our curricula and programs relevant to the employment marketplace.  At the end of the day, a business degree’s value is best gauged by the quality of its placements.  We plan to fine-tune the quality of our education to remain relevant to the demands that our ever-changing economy places on our students and graduates. This cannot be a one-time exercise, but a virtuous cycle of growth that is aided by the students; faculty; the dean; the Business Board; our alumni; the University; our accrediting bodies; and of course our community – both local and global – around us.

Internships will be another area of focus for us this year and going forward.  Today’s successful intern is tomorrow’s successful employee; and is a future successful alumnus for us.  Internships enable both students and their employers to gauge each other in an early and low-pressure setting, leading to more successful jobs and careers.  To that end, I strongly encourage you, our students, to tune your browser to: www.internships.com/welcome/stu.  One of the tools you will find there is the Internship Predictor.  This algorithm integrates a cross section of items for assessing preferences in personality traits, interests, and values. The results connect clients to congruent job listings, recommended content for resumes, and deeper analysis of suggested career tracks. I wish we had these tools when I was an undergraduate student! We intend to have every undergraduate student experience at least one internship during their course of study with us.

We are also actively growing our partnerships with institutions abroad.  Our location in Miami Gardens gives us a ring-side view not only of the recently concluded World Cup; but of the growth in nations like China, India, Brazil, Peru, and Panama.  Panama, for instance, is gearing up to be the Hong Kong of Latin America. The widening of the Panama Canal will allow for larger container ships to pass through the Canal, bridging the continental divide between the Atlantic and the Pacific oceans.  The Port of Miami is expected to be a major beneficiary of this expansion.  We, in the School of Business at St. Thomas, will look to develop programs that train students to achieve gainful employment in this burgeoning area.  Study abroad programs will grow; as will international trips.

My faculty, staff, and I are always open to new ideas from you.  Please do visit us on campus; and on the Web.  We are dedicated to the notion that every student is an individual; with individual needs and aspirations.  We are here to help achieve your goals and aspirations, one student at a time.

Go Bobcats!

The Ex-Im Bank (With apologies to the popular song: Should it Stay or Should it Go?)


I take a contrarian view (it is important to have a position on things - don't you hate it when you are going out for dinner and your partner/guest has no opinion on where or what (s)he would like to eat?!) of the Ex-Im Bank.  What is the Ex-Im Bank you ask? Well...read on (the following excerpt is from my column in the Orlando Sentinel).

The Ex-Im Bank of the United States (1) awards direct loans to foreign buyers of US goods, some of dubious credit; (2) provides loan guarantees to banks that lend to foreign buyers; (3) insures U.S. exporters and banks against foreign defaults; and (4) provides working-capital loans to smaller clients. Ex-Im picks and chooses American companies to support based on their size; industry (it places restrictions on high-carbon intensity projects); and their environmental record (10% of its authorizations must go to renewable energy projects).  There have even been allegations of graft (the House recently launched a corruption probe of Ex-Im Bank).  In a nutshell, Ex-Im sometimes awards loans and guarantees that mainstream commercial lenders eschew.  And it camouflages its cost of doing business via the use of arcane accounting rules; ignores the opportunity cost of capital; and employs a discount rate equal to the yield of U.S. Treasury Bonds. 

The Bank, however, does boast a miniscule default rate of 0.2111 percent.  This, however, is only made possible by the fact that close to 80% of the dollar-value of its loans and guarantees goes to shore up titans like Boeing and General Electric.  Hence, the dubious moniker: Boeing’s Bank.

What some of Ex-Im’s beneficiaries do with their loans and guarantees is also equally telling. In February 2012, Delta Airlines along with the ATA, and the Airline Pilots Association International brought an unsuccessful lawsuit against Ex-Im for its $3.4 billion loan to Air India to finance the purchase of 30 wide-body aircraft from Boeing.  Air India, then already in the red, subsequently crowded out Delta from its non-stop New York – Mumbai sector.  In the lawsuit Delta alleged that Ex-Im had allowed Air India to purchase and operate aircraft at a lower cost of capital than was available to Delta.  The ATA, furthermore, countered Ex-Im’s claims of protecting American businesses (Boeing) and jobs by declaring that only four of Boeing’s 17 critical aircraft components are still made in the USA.  The others are outsourced abroad.

Ex-Im, I believe, is an anachronism in today’s world.  It harks back to a time when American companies engaged American workers, used American resources, built in America, and exported abroad.  Today we live in a world of tax inversions where American companies like Walgreens consider moving to Switzerland to shelter from US tax liabilities (Walgreens has since abandoned this plan); Buick is the automobile of choice in China; and Toyota manufactures in Kentucky.  Today Boeing outsources most of its critical components; and GE moves plants to Mexico funded by the Ex-Im bank.  The idea of a monolithic U.S. manufacturer that Ex-Im claims to support is jejune; mostly a chimera that lies in a heap at the bottom of old Youngstown. 

Today’s commercial lending follows sophisticated free-market principles that factor in risks and returns.  An Air India, swathed in red, should have to pay market-imposed premiums to finance its purchase of Boeing aircraft; an Emirate Airlines ought not to need Ex-Im to finance its purchase of wide-body jets from Boeing.  And the U.S. taxpayer need not support a corporate welfare dirigible masquerading as a decades-old sustainable business model.

Do you agree? Have an opinion - chime in.

Presence


Ever notice how some people stand-out in a crowd?  May be it is in their gait; the way they talk; their enunciation and pronunciation; their choice of words; the register of their voice; their stance?  Or may be it is the clarity of their thoughts; their decisive actions; their empathy for people; the way they relate to others? Or is it more superficial - the clothes they wear; the cut of their suits; the crease of their trousers; the shape of the shades covering their eyes?

The Wall Street Journal, a publication that every business student ought to have access to and ought to read on a daily basis and in an addicted manner, recently ran a nature versus nurture piece on it.  Read it here: 


Check back again for next month's blog.  Remember, the Business Dean at St. Thomas University is an opinionated man.  He will provide fodder for lots of discussions in the months ahead; and he wants to hear back from you.

Go Bobcats!

Som Bhattacharya
Dean, School of Business
St. Thomas University