A write-up on Price manipulation strategy of a commodity

On Price manipulation of a commodity (written on 23.12.13)

Premise-: I am writing this essay by taking a cue from ‘Sumitomo copper case’ as depicted in “How copper came a cropper” chapter of “The accidental theorist” by Paul Krugman

In case a trader (rogue?) wants to play a successful price manipulation game, as par Mr. Krugman, he requires the following-:

      The commodity must have a heavily fluctuating supply & demand

      It can stored for future sale without much hassle (hoarding)

      The market-place for the commodity should offer the advantage of ‘future contract’ (it gives the trader advantages such as i) no need of physical delivery, ii) predictive purchase & sale etc.)

I am adding another requirement to augment Mr. Krugman-:

v  Only a few suppliers which make it difficult to jack up the supply if the situation demands so.

Now, I would try to jot down a prospective game plan for the hypothesized trader-:

  • Buy a huge part of the target commodity (may be using the ‘future’ route) [he can buy slowly, so that his own excessive demand does not drive up the price & his plan remains hidden from other players]
  • He then creates an artificial shortage of the target commodity by not selling a part of what he has bought [this part is essential to satisfy the demand of the market, he may sell a small part (less than the market demand) to avoid glare of authorities]
  • After this, there would be scarcity of the commodity in the market & he now can reap the benefit by selling at an inflated price (by doing this he may incur a small loss by withholding supply; he may have to sell the withheld commodity later at a lower price but that loss will be offset by the previous sale at a higher price)

Some other additional points added by the writer-:

  • The trader should have resources to play at a very large scale
  • This type of ‘behaviour’ is allowed by the authorities
  • Nobody else got any hint of the game
  • The trader requires to collude many other stakeholders in the market

N.B-: All associated copyrights acknowledged

 

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Internet advertising – an user’s perspective

We like it or not – advertising is here to stay. It is there on newspaper (nowadays becoming more prominent than news), on TV (in a manner that serials fast becoming ads), on FM radio-everywhere and now it has consolidated its position on net. There is nothing to say against it – for purely commercial reasons it would be there. The point is how it should be positioned. I as an user, have got these points on how advertising should be positioned on any website-:

  • It should not be positioned in a way that it disturbs the user’s main purpose (the webpage)
  • Can be positioned at the corners (blinking & flashing would do within a reasonable level of tolerance)
  • It should not come in the middle (or inside the main body of the page) of the page
  • It should not be positioned in a manner that the user is forced to leave the webpage

Unfortunately, that is what happening now. Insensitive or rather insincere placement of ad on a webpage is harming all stakeholders-:

  • The user got irritated & forced to leave the webpage
  • The website loses its main purpose (connecting with users!)
  • The advertiser instead of earning viewers earns scorn from the Target Group

I guess there is a solution & that lies in the word ‘sincerity’. The webpage owners should check how the ad is affecting the main purpose of the webpage. The advertising manager should put himself in the shoes of a viewer & get an idea how his ad is affecting the user. I guess advertisers will evolve along with the medium & we would see a win-win scenario for all.

Military & Business strategy-A case study-1

I discussed in my earlier blog, the need to study business & military strategies side by side for business-people. I wish to develop a framework to compare business & military responses to scenarios in real world situations. Therefore I wish to develop a case where there will be 2 different scenarios- a) A real war & B) A real corporate leadership struggle. I wish to show by using similar approaches to both the problems, that there are a lot of things which could be learnt from military strategy for developing better business policies.

In the 1st part of the study, I would develop the scenarios and would try to give readers an idea about the environment associated with them. In the 2nd part we would proceed to generate solutions. Readers are welcome to actively participate in both parts.

Scenario for Military strategy-:

The prize-: A nation with strategic importance & moderate resources

The problem-: A civil war raging between the people in power & the people who are in opposition

The outside influencers-: The leading world & regional powers are supporting different sides to further their own causes.

Team Red-: The people in Power.

About Team Red-:

i) The group in power represents just half of the people of the country but they are dominated by the minority socio-religious group and some people from the majority group.

ii) Their moral standing-:

a) They are progressive

b) They are disciplined and well-organized

c) In their long tenure, they ruled a peaceful and moderately prosperous land

Team Blue-: The people in opposition

About Team Blue-:

i) This group represents the other half of the population. They are mostly from the majority socio-religious group.

ii) Their moral standing-:

a) They say that power is held by an aristocratic, kleptomaniac group while most of the commoners are in dire straits

b) They say the so-called progressiveness is actually to mask the misdeeds of the ruling elite

c) The peace is achieved by coercion and deception

Scenario for Business strategy-:

The prize-: A company with good growth potential & moderate but sustained profit generating past

The problem-: A managerial battle waged by some senior level people against the current management with the help of large rebel shareholders

The outside influencers-: The large rebel shareholders, some of whom are owners of competing organizations

Team Red-: The current CEO & most of the senior managers backed by the largest shareholder

About Team Red-:

i) The current managers in control of the company are representing just over half of the medium & senior level people of the company. The single largest shareholder is backed by some smaller shareholders with just have enough votes to be in control.

ii) Their moral standing-:

a) They are ethical

b) They are experienced & well received by all stakeholders (from trade unions to statutory bodies)

c) In their long tenure, they have generated moderate profit & wealth for the shareholders within regulatory & moral guidelines generally accepted by all

Team Blue-: Some top & medium level managers backed up by the key large shareholders

About Team Blue-:

i) This group represents some of the top & medium level managers. The rebel shareholders are led by the other large shareholders (other than the largest shareholders) & majority of smaller shareholders.

ii) Their moral standing-:

a) They say that so-called ethical practices are used to cover-up management inefficiencies

b) They say that so-called acceptance of stakeholders is bought by false hope of profitability, salary & in some cases coercion.

c) They can improve profitability & create more wealth for the shareholders

A reformist agenda

I read a good argument about the current economic situation in The Hindu Business line (http://www.thehindubusinessline.com/industry-and-economy/banking/indias-stagflation-calls-for-volcker-pill/article4775561.ece?google_editors_picks=true.) I also wonder whether this sustained inflation has a more deep rooted source. This might be a supply side problem after all. Various bottlenecks must be stopping capacity to grow as par the growth of demand. The same bottlenecks must be contributing to the growth slowdown. I guess alongside monetary measures, we might need a strong structural reform agenda which must have to come from the fiscal & legislative side. Inefficiencies (like misplaced investments, leaks etc.) are the main enemies of Indian economy now. When we are talking about slowdown in deposit growth, we need to introspect why financial inclusion is not happening. It might be because of same legislative bottleneck which is obstructing a reformist agenda. Given the grim situation of the economy, we need to join hand to remove obstacles before long term reforms. Otherwise we would have to go back to the era of slow growth along with the bitter pill of inflation.

Business & study of military strategy

Everyone in business management field has heard of Art of War & Arthshashtra; famous books by two famous diplomatic, social, political & military strategists. People in business tried to draw lessons from them to face their problems. I strongly agree with them; since business is almost like a war. You are constantly at war so many other forces to achieve your (your company’s) goal. To some extent, people talk about The Prince also as a good political treatise from which managers could learn as well (I am not sure to what extent The Prince is well-respected among managers).

I wish to further the cause of studying military strategy to bolster our management skill. Today I just came across some random defence study related papers on net and found them really interesting. Their approach to each of military problem follows a very strong analytical path. They wish to see every problem from both long-term & short-term perspective. They also try to study each player’s strategy from his/her past & present condition. They try to postulate, that what each of the stakeholders in a conflict wish to achieve, keeping in mind their historic, social, political & religious development. They also see their own response in the light of all possible consequences, ranging from financial to social ramification. They also try to see how each of their actions would impact the opponents’ response. So, it is almost like our competitive business environment. We need to carefully judge options we have and countermeasures our competitors possess.

So, I propose that Indian management schools should co-operate with defence establishments, diplomatic missions to introduce a joint study/ course. I hope that will benefit both future strategic defence personnel as well as business graduates to hone their skills to take on the challenging world that is waiting for them.

Trivia-: In our Strategy course, we had a case study of Robinhood as the course opener (which I really enjoyed)

N.B. I wish to study defence/strategic papers & be part of any circulation from such bodies for the aforesaid purpose. I would like everyone to come forward & contribute on this issue.

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A Public sector revival story

The debate is old and arguments are clichéd. We are still not sure (at least in India) whether government has any business of doing business. Somehow in post liberalization India; public sector utilities seemed to fall out of favor of both public & experts. We now see a sustained push for privatization of public sector utilities. The reasons are numerous, including but not limited to-: sustained loss, corruption, militant labor uniosn etc.

Still, when I came across this article in The Hindu (http://www.thehindu.com/news/cities/Delhi/from-despair-to-revival/article4752828.ece?ref=sliderNews) about an almost forgotten government dairy & it’s almost miraculous revival; I wonder whether mixed economy is still the path or not. It is an inspiring story and there are lessons to be learnt from it. Milk is an important part of any Indian’s diet (especially for vegetarians) and its price has increased like anything in last couple of years. On one side, we see entry of giant multinationals like Danone in Indian market and on the other side; we find scarcity of milk in many parts of the country (at least for poor & middle class). In this scenario, the revival of Delhi Milk Scheme by an elderly agriculturist & professor is really heart warming. The actual modus operandi of this revival is not revealed in the article. I guess it is still good old practices of using diligence, discipline and determination to overcome business challenges. I wish them all the best and poor malnourished children of the country a little better days ahead.

N.B. I am really interested in doing a study on a successful dairy (may be in Tamil Nadu) to know more about this important, resolute yet not much talked about sector. Till then-: ‘Piyo pure, jiyo more’!

Reference-: The Hindu-online edition-26.05.13

Trend in Job Switch-among MBA graduates (after 5 years of graduation)

  • I conducted a survey on job switching of MBAs from a premier institute of India
  • All people considered are from same batch & roughly working  for 5 years post MBA
  • Out of a population of 167 people 39 are randomly selected
  • Their present occupations are categorized in the following groups-:
    • Management Consulting
    • Finance
    • General management
    • Information technology
    • Marketing
    • Own business
  • Key findings of the study are-:
    • Roughly half of the people have switched job (49%) at least once
    • Among the switchers-people from finance constitute the largest chunk
    • Although only 38% joined finance after graduating-53% of the switchers are from finance
    • No. of people joining Management consulting (36%) after graduating was almost equal to that of Finance-but only 37% of the switchers are from Management consulting
    • 13% people have switched twice & only 5% people have switched job thrice
    • Although only 1% of people started own business after graduation; 16% of the switchers are the proud owners of their own business
    • Switchers from Consulting arena are less loyal to their 1st job type than Finance (only 14% of management consultants joined consulting again against 70% of Finance people doing so)
    • People from Consulting switched to maximum no. of diverse fields (14% consulting, 29% Finance, 43% General Management, 14% own business)
    • People from Finance switched to less no. of fields (70% finance, 10% IT & 20% started own business)
    • Although 29% Consultants went to Finance, none from Finance went to consulting!
    • Among the switchers % of people joining general management is double of the % in the 1st job (26% against 13%)
    • In 2nd job-largest group chose finance (47% against 38% after graduating)-a return of fiancé post crisis?
  • Key shortcoming of the study
    • People are selected from one institute only
    • No. statistical test of significance is conducted
    • Gender bias is more in the sample than population (in population 22% were girls, in sample only 18% are girls)
    • The batch was heavily tilted towards consulting & finance (ah! Good old world before 2008 financial crisis)
    • Heavier exodus from finance can be due to aforesaid crisis
  • Please express your views.  Suggestions are welcome.
  • All data collected from public domain (social networking site)

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