Feb 14, 2015

Travelogue - Alexandria


“You can get a car of any make done here. Half of the city drives a BMW”  - remarked our guide Ahmed, as he wriggled us through the narrow lanes outside Alexandria railway station. It was an exaggeration.. However, for those who wonder where the second-hand / third-hand vehicles of the developed world end-up, the answer is Africa.  An average car-workshop guy here should be much more skilled than a car-mechanic in the West. Here to succeed he needs to mix and match. Body of a Benz, engine of a Chevy, I guess you can find any combination here.

We reached Alexandria after a three-hour train ride from Cairo. Though I did harbor expectations of capturing at-least fleeting images of the Nile Delta, those were quashed quickly. The feeling that you get while the train approaches ‘Misr’ station is exactly the same as that of train approaches to Mumbai or Delhi. Cramped & incomplete houses, people struggling to make ends meet, it is as good as any metro city in developing world in those aspects.

Alexandria - Corniche
Alexandria was ancient world’s gateway to Africa. It does not have the importance that it held in those days. But you can see remnants of the bygone era. Greco-Roman buildings, monuments, Italian influence, Turkish & Mediterranean style cuisine. This would be one of the most cosmopolitan cities in Africa. We even came across a movie theatre which was playing Shah Rukh Khan’s “Happy New Year”

As you navigate through the old city, you could see posters of Hosni Mubarak, Morsi & Sisi in various quarters showing how politically charged-up the atmosphere is.
Pompei’s Pillar & Roman Catacombs –  Most tourist guides would cover these two for you.  The historical significance apart, these might not appeal much to an average visitor.


Citadel at the place of 'Light House of Alexandria'

The sight of the Corniche blew away our tiredness.  Yesteryear’s wonder – “The lighthouse of Alexandria” is no longer there. Only a castle stands at its place. That’s from where you can get the best view of the Corniche skirting the Meditteranean.   This is where the legendary Mark Antony & Cleopatra lived once upon a time - a time when Alexandria was perhaps the center of the world.

I was surprised to hear that lot of Indians frequent to this city – And the reason behind that – 100 odd Kilometers to west of Alexandria lies this place – El Alamein, one of the prominent battle grounds of World war II . Thousands of soldiers of various nationalities lay buried there. Their relatives visit those sites even now.  Alexandria has a massive library – Bibliotheca Alexandria – One of the largest libraries in modern world.  We didn’t have enough time to cover that.


Alexandria left an impression of an old wise man in me. Someone who refuses to be taken lightly, yet who is not quite powerful to fight its way into prominence, but quite content with the age-old wisdom & intellect.

Jan 23, 2015

The Economics of Swiss Franc's Float

A Swiss watch or vacation in Zurich is going to cost you much much more.. The more I read, more I feel like I should have taken a Swiss trip before the this float decision
Much has been written about this. For a good introductory read, you can check the Mint article . Most of the literature of this decision has focused on the macro underpinnings. While it is true that the macro factors forced SNB to take this decision, I think it is important to understand the micro-economic implications of currency pegging & its aftermath
Switzerland is a country known for its political stability. It stood insulated from even the world-wars. Such a place , coupled with its banking laws naturally has an appeal for black & white money from risk averse people across the world.
The currency pegging was introduced by SNB to protect the economy from the global financial crisis. For a country, preventing appreciation of currency is quite easy -- Just print more money. The effect of this can be quickly assessed by checking a few numbers in SNB Balance sheet
If you look at period from 2010 - 2014, the total balance sheet size has approximately doubled ( CHF 269 billion to 525 billion ). If you look at where this has gone into, you would notice that bulk of it is  foreign currency investments ( 204 to 475 billion ) .  This is not accompanied by a proportional increase in economic activity or growth irrespective of which indicator you use to assess it ( GDP growth / consumer price / inflation ) .  This is best illustrated another two numbers in the same PDF. Bank notes ( value ) in circulation over the same time period has increased only by about 6%, whereas the deposits in domestic banks have grown about 9 times .  So, where this money has gone into ?  The obvious answer in all such economies is Real Estate
In such a situation, currency pegging ( i.e, capping appreciation ) makes matters worse for the local population.  Since the local economy has not really picked up, an average coffee-shop owner / farmer still sees his inflows largely the same in value ( CHF terms ). And when he goes to buy a home , he's kicked out of market by investors ( or, rather, risk-averse people ) who bring in Euros ( where, economic activity is much higher than CHF ) & convert it at a fixed rate to CHF.
The impact of this is lack of availability of affordable housing .Though the intention of currency peg was to keep the industry competitive, encourage investment, it ends up sidelining the local population.   At a micro-level, this drives huge resentment . Given the fact that ECB was about to take a cue from US Fed, currency peg would have left SNB with a very risky balance sheet - something which looks like a hedge fund betting on property & currency - and a disgruntled local population.   
In an increasingly connected economy, it is never a prudent decision to peg the appreciating exchange rate. Adam Smith's "Invisible Hand" or market forces would catch up with you sooner or later. 

Nov 26, 2014

Apple - Platform Thinking,Network Effects & Valuation

One of the electives that I took while in IIMK was this less fancied course - Complementary Products & Competitive Advantage  . The fundamental message in that course was in applying 'Platform Thinking' concept into a lot of situations . A platform could be thought of as an area where two or more types of consumers / producers join for their mutual benefit.  And the value of the platform grows as more and more consumers / producers join it.  Typical example of this is Card Payment networks - Visa & Mastercard.  So, if you are a card network provider,  merchants are forced to give that as a payment mechanism because consumers want that. And, more consumers joining the platform results in more merchants adopting it.  Like a domino / network effect. If executed well, it soon reaches a tipping point from where more consumers & merchants just adopt it.

This concept could be extended to a lot of situations - Currency is a platform  ( explains dollar's dominance  ) .. Amazon's kindle publishing is a platform..  Facebook is a platform ( you have users & advertisers ) , Airports could be thought of platforms connecting Airlines, Passengers & Retailers.    In a way, it is a kind of thinking that visualizes a business as a convergence point of different types of consumer - producer combinations

If there is a factor that has strongly differentiated Apple from Samsung in the smart-phone / tablet / field, it is internalizing this platform concept into their product strategy. In other words, platform thinking is Apple's competitive advantage. Product design, user experience, marketing strategies  - All can be copied.  But the game is no longer about producing a feature rich / perfect phone . It is all about enriching iPhone / iPad as a platform

This platform is much more than the App-Developing eco-system.  But it all started with it.  Apple took great care in nurturing the App-Developer eco-system.  Its entry barriers & tight quality checks resulted in attracting a well-paying user-base & a talented pool of app-developers adopt it as a platform.  It might be numerically less than the Android App store in terms of Apps or developers or consumers. But quality & experience-wise , I'd say Apple has nurtured it well.

They had a few more platform experiments -  iBooks  , Newsstand , Passbook .. All these are nothing  but interesting variants of platform concept that brought a distinct user-base & producers / sellers towards iPhone / iPad . With the latest entry  - Apple Pay -  I think Apple has virtually killed the competition . True, Samsung has Google Wallet  -  But its not about being first in the market. It is about properly launching it & marketing it to reach that Platform Tipping point from where the platform would itself grow.

The value of iPhone today is not about electronics / features / UI alone.. It is about access to these platforms that it provides you.  And it is this valuation that Corporate Finance often misses
In a networked world, if a company of Apple's size manages to make a 20%+ Jump in Stock in a month or two -  largely on account of the Apple Pay announcement - I've to say that it is being truly successful in internalization & execution of this Platform Strategy

See the Graph Below on Apple's Stock 



I've to say, Carl Icahn is spot-on in asking for share-buy backs. Because present valuations does not account what new platform ingredients can Apple innovate - and the network economy benefits that it can add to the company.