Yesterday I met the head of banking placements for a leading bank.
For some time have I been chasing banks to get dough to fund the rising sales of the company. Alas our business model does not fit the bank formulae set out by various committees in days of yore.
For many years did I, as a venture capitalist, bemoan the lack of modern banking analysis, a la the US;). For years did we mutter about a lack of understanding of business etc.
The banking wallah yesterday was apologetic because he did not think he could get us money because the business fell out of the banking box for the following reasons:
1) No net profit (but as defined by the payment of income taxes). The reason? Indian banks are correctly scared that reported income is fiddled. Unfortunately an insistence on paid taxes merely means that not only will the books be fiddled more, but also that money not already stolen by the entrepreneur will go to the government. Poetic justice since the government owns most of the banks.
2) A low sales to asset ratio. For a manufacturing business growing organically at 35% to 40% that is a given because one is always adding stuff, but the plant is always unbalanced. The only way to get around that is to 1)flog the plant for all its worth to show numbers; 2) borrow like hell for a 3:1 expansion; 3) suck pond water while you absorb that sort of growth and bury all start up problems in working capital and fixed assets; 4) restructure debt and 5) back to 1 again.
Ah, if I had only known all this when I was investing.
Thursday, July 30, 2009
Wednesday, July 29, 2009
I Love China - and cheap Indian buyers
No, really.
For years I have run a small manufacturing business that is reasonably protected from Chinese imports. Competing with us means shipping a lot of air, which can be expensive, and long lead times which are anathema to our Indian customers. Our European customers are wary of Chinese production for various reasons including the fire and forget nature of trade with China (LC's only please).
That has not prevented our wonderful Indian customers from threatening us with the China price.
At first we could not understand how the Chinese did it because we know their plant configurations, labour use etc. In order to be comfortable investing further we (and the rest of the Indian industry) had to beat the price.
We used:
1) More productive machines
2) Better trained workers
3) Large capacity tooling
4) Reduction of processes
At Indian selling prices (40% to 60% of European) we have the same labour to value added ratio as the most efficient European manufacturer.
The China price is no longer threatening. Now if only I could afford the freight to China.
For years I have run a small manufacturing business that is reasonably protected from Chinese imports. Competing with us means shipping a lot of air, which can be expensive, and long lead times which are anathema to our Indian customers. Our European customers are wary of Chinese production for various reasons including the fire and forget nature of trade with China (LC's only please).
That has not prevented our wonderful Indian customers from threatening us with the China price.
At first we could not understand how the Chinese did it because we know their plant configurations, labour use etc. In order to be comfortable investing further we (and the rest of the Indian industry) had to beat the price.
We used:
1) More productive machines
2) Better trained workers
3) Large capacity tooling
4) Reduction of processes
At Indian selling prices (40% to 60% of European) we have the same labour to value added ratio as the most efficient European manufacturer.
The China price is no longer threatening. Now if only I could afford the freight to China.
Monday, July 27, 2009
Capitalism and Pakistan Landlords
http://www.nytimes.com/2009/07/28/world/asia/28swat.html?_r=1&hp
The NYT approvingly looks for displaced militia organizing landlords to return to Swat, otherwise it will amount to redistribution which will create a vested interest for the Taliban. Meanwhile, said landlords are refusing to let tenants plant crops on the vacant lands.
An aside asks what this portends for Punjab with its mega landlords and where sympathy for the Taliban is growing?
Look across the border, gents, where, also in Punjab, (much smaller) Punjabi landlords are using force to cut the wages of their immigrant labourers.
The motto of the story: you can't change Punjabi landlords but you can change their circumstances with a dose of representative government - not merely 'democracy' as practised by the Bhutto's and the army.
The NYT approvingly looks for displaced militia organizing landlords to return to Swat, otherwise it will amount to redistribution which will create a vested interest for the Taliban. Meanwhile, said landlords are refusing to let tenants plant crops on the vacant lands.
An aside asks what this portends for Punjab with its mega landlords and where sympathy for the Taliban is growing?
Look across the border, gents, where, also in Punjab, (much smaller) Punjabi landlords are using force to cut the wages of their immigrant labourers.
The motto of the story: you can't change Punjabi landlords but you can change their circumstances with a dose of representative government - not merely 'democracy' as practised by the Bhutto's and the army.
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