Strategy Design of Service Strategy in the Era of Globaliza obalization Globalization J.K. Sharma B.B.

Das

Service industries, although do not produce

physical goods as products but their uniqueness signifies the importance of services in globalization scenario. The manufacturing industries on the other hand gain global advantage mainly from comparative advantage i.e. in factor costs, economics of scale in production, marketing distribution, logistics and purchasing , mobility of production or any combination thereof. This means that the ultimate aim of the manufacturing unit is how effectively the product can be moved to the customer. The company that chooses to adopt a strategy of innovation moves through a state of uncertainty both in terms of technology and competition. The success of an innovative product is not only due to the technical characteristics that potentially meets the market expectations, but also the function of organizing the marketing, production and service functions in such a way that customers are impressed with the company. Innovation is never complete if not accompanied by the product that performs well and therefore presupposes an awareness of the needs of the customer. The level of investment for an innovative product is always significant and the acceptance of the customer is the final achievement of the objective. But the failure to adopt the production systems for services such as product demonstration, physical distribution and after sales service can completely negate a large part of the efforts made upstream. Nothing proves more disquieting in the customers eyes than to see the new sophisticated and expansive apparatus out of order because of lack of replacement parts, or the technician who arrives to repair the defects and not experienced to identify the defect and rectification. Most of the cases the technician develop his repair skill on customer equipment. A new product is always judged on its overall quality. The quality of consistency of services certainly has priority over offering a breadth of services. For example, the proposal to support competing equipment is of no interest unless it is part of the total configuration of a complex system

Globalizationthrough innovativecustomer demands higher satisfaction products

and excellent after sales services. A balance between cost and quality is the present day market strategy. Quality demands defect free service and instant defect rectification. The understanding of customer requirements both present and future, which vary widely demands continuous data collection and research. Globalization thus has projected multifaced challenges. Continuous evolve of new ideas and procedures keeps the design, production, marketing and service agencies in a dynamic state. Globalization demands flexible and speedy approach to market environment where diversity and quality linked with a continuous customer relation by meeting their needs. In fact the motivation process brings customer choices to the market by exploring their imagination and scale conscious needs. It is a management challenge to handle the present day market situations through multi-objective decisions.

Dr. J.K. Sharma is Professor, Faculty of Management Studies, Delhi University Cmde. B.B. Das (Retd), is Principal, KIET School of Management, Ghaziabad

in which the firms products also pay a part. Speedy delivery of replacement parts is often indispensable, especially if these parts are of new design. If the concept of repair free has to be adopted than considerable amount of funds have to be spent on product design and manufacturing including expensive components. Differentiation through the range and performance of services A companys ability to provide comprehensive service associated with its tangible product can contribute customer satisfaction. In certain cases, it is the dominant competitive force. In others, it is the only differentiating factor. In general strategic orientation are suggested without taking the subsequent step of redefining the vary concept of product as part of the strategy. However, these two concepts should be disassociated. The product defined as the combination of a physical object, a series of services associated with it, and a management system for its lifetime, seems valid in all choices of competitive modes. A strategic orientation with service as its banner, therefore, constitutes one of the possible modes of competition that especially emphasize the range and performance of services provided in the framework of the products non-physical dimension. Thus creating a differentiation strategy through service, even more than usual, requires a series of specific service policies to support the tangible product; strong integration of the technological and tangible dimensions, favoring the maximization of service performance, highly personalize services where appropriate and often a deliberate policy of supporting the competitions equipment. Many customers, for example, look for ways to configure systems with good overall performance that integrate different brands of compatible equipment. The risk involved in this strategic orientation services can be high, so it is important to evaluate the level of their direct probability, but keeping a long term perspective. Establishing innovative approaches to customer relationships can call for heavy investment. Differentiation factors often prove to be fragile if the underlying technical ability required is of law complexity. However, if the service quality

obtained is the result of efficient inter-functional coordination within the firm, the advantage gained is not easily reproduced elsewhere, given the summing difficulty of cross functional coordination is most manufacturing companies. Since service personnel exercise considerable responsibility and power in strategies depend on excellent service, exceptional management of the human resources assigned to service functions becomes critical. Finally a lack of coherence among functional strategies is particularly dangerous in the firm that has chosen to concentrate investment of differentiation the company through service. For example, a publishing company with a remarkable centralized physical distribution system, reinforced by an efficient network of regional centers, the company was in a position to provide its books over other publishers. However, managers of production and logistics departments, anxious to increase the return on substantial investment with their scope of responsibilities hoped to provide services to other publishers who would than be considered ordinary customers with the same status as the internal publishing departments of book division. The managers of publishing departments, understandably, argued that taking such a direction would lead in evitably to loss of their decisive weapon in the competitive rivalry that existed in the market. This example illustrates that preserving a balance between producing goods and providing the associated services can be delicate, particularly when the dominant strategic direction is precisely that of differentiating the overall product through the range and quality of service. Seeking Market Leadership Through Low Costs The effort to minimize the costs related to producing goods and providing services at a given level of quality is a constant preoccupation of every business leader. The choice of other strategic directions in no way precludes seeking high productivity and keeping basic operating costs at the lowest possible level, so long as the firm provides superior performance along the firms chosen competitive dimension.

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Putting into practice a low-cost strategy for market leadership constitutes a more drastic orientation of which the first implication for the service mix is to determine the minimum service threshold that the customer seems willing to accept, while still considering the overall product satisfactory. Competition based on costs alone frequently places companies in an uncomfortable position in terms of probability. In order to construct a suitable service policy, it is important to determine the firms area of responsibility; is the company held responsible by customers only for the products price, or for the total cost of acquisition and operation? The technical choices adapted ought to favour solutions that are simple, durable, call for standard components and demand fairly common capabilities for future maintenance. A high degree of customer involvement in and responsibility for service operations seems to be desirable most of the time; taking that direction implies opting for modular design combined with the development of automated diagnostic systems, and an efficient organization for the physical distribution. The range of services typically has to be narrowed for the firm that competes on cost, often simply because, otherwise, profitability is unacceptably low. It is than particularly important to carry out the remaining services in consistent and reliable fashion. Poor quality provide for a minimal number of services can lead the customer to conclude that the product service has broken through the lower limit of tolerability and has, therefore, negated the competitive edge that resulted from low cost by, in essence removing the product from the competitive battlefield. In service industries, globalization means that a mobile customer base such as tourist, the business traveler, experiences an identical product wherever they go, at each access point or transaction. Service delivery is about controlling the quality of the offering at the point of sale to the customer. In service industries the customer can move to the product. It is for this reason that VISA or Gold card by Banks for international travelers has been developed. It aims to provide a standard quality service to the customer, wherever he goes to take up that service. This

approach is a common one in the service industries. It is highly visible in the airline industry whose travel offices and staff uniforms are identical worldwide and with the international hotel chains, who undertake to make the travelers experience of Hong Kong, London and New York entirely similar. In some vary real ways, services travel and can be recreated globally much more easily that products, since what is being recreated is the concept and the quality of its delivery. The critical feature of the service industries rests on control of the offering at the transaction point with the customer or client. It is this quality of customer experience by which service quality is measured. Successful globalization for service companies rests on the management of service delivery on a global basis and across a far more diffuse corporate environment. When the service network is extended globally, the management of outcomes for the customer faces these obvious quality control problems: Reproducing the service concept Controlling the quality of the offering Worldwide consistency

The rules of competition and the strategic choices the firm can make appear to be strongly influenced by the structure of the industry in which it competes. The goal of competitive strategy is to position the firm in such a way that it can effectively exploit the opportunities it perceives, ad defend itself against existing and potential competitive threats. Determining the existing strategic opportunities for service in a given market segment or industry helps to identify the principal variables open to adjustment to build a service policy based on the competitive position of the firm. The formulation of a service strategy requires the analysis of the three product dimensions: first, the physical object, second, the services that accompany the physical product, which might differ from the market segment to market segment, and third, the time dimension, the anticipated evolution of both the physical product and its associated package of services over time, as

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customers need- or uses of a product- change. However, the nature in the international competition in the service industries has shifted a result of recent structural, market and technological changes. Maturity of markets, developments in communications and information technology, changing notions of services, economic and cultural homogenization of markets, have combined to change the competitive environment for service industries. It is now possible for world market leaders to emerge and reshape the sources of competitive advantage in their sector. Service Mix Strategy The principal steps to establish a framework for formulating service policy are the following: Setting priorities to decide how important to the firm service activities are; Evaluating and prioritizing various service decisions in terms of the impact of those decisions on the future performance of the firm; Establishing interfaces to be managed both internally and externally to implement the service plan; Determining a coherent set of complementary and mutually compatible objectives among service mix players, planning the timing of their myriad activities required to roll out the portfolio of services over time.

framework of a well coordinated product reflects, in part, the evolution of this concept within each firms individual culture. Conceptualizing the product in terms of its total cost in use over its life cycle makes it possible to establish the characteristics of the most economic product package, taking into consideration maintenance, repair, distribution, production and development cost factors. But in addition, the primary objective of service plan activities is still to determine, then to attain, overall customer satisfaction as defined by the market, so that the activities of preparation information and upkeep can be successfully accomplished and also so that integration activities which includes customers needs for the physical products functional availability in time and space-on hand, functioning properly can be taken into consideration. At this point, in order to discuss our third product dimension- the time factor in an appropriate manner, it is helpful to differentiate carefully between the concepts of life cycle and life time. The classical marketing approach to a products life cycle describes the evolution, in sales volume, of an object or a service, from its launch into the market until its withdrawal. Four periods in this life have been determined: launch, growth maturity and decline. On the other hand, lifetime covers all of the periods in the life of a unit of product from its initial production, through whatever series of updates may be necessary, or until its ultimate destruction- or at least until its abandonment by its last known user. With three product aspects in mind, it is possible now to discuss product (and investment) planning along three dimensions. The physical (and technological) dimension, including the product and process design methods for the physical product, which explicitly take into account services provided throughout a given lifetime. The service mix dimension, which involves establishing the range and performance of the different services to

Depending on their relative importance, decisions are made at different hierarchical levels. The responsibility or at least the authority, defining performance for the products service components falls on the decision makers at the top of the hierarchy. The choice of performance measures is not meaningful unless it fits into the frame-work of the total strategic plan. This orientation also determines the relative importance of the service mix compared with the firms other strategic piloting tools. The progress made in integrating primary service mix activities system into the

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be offered in conjunction with the physical product, and the methods by which these services are to be produced and delivered; and The lifetime dimension which necessitates constructing a product management system for the length of the products active life- a management system for the lifetime of the physical product and its accompanying services.

A global strategy analysis and design, however, service firms very often work on defining their international strategy while they already operate on multiple foreign markets. A more of less flexible definition of the product lines, are the services provided international or local. A learning process to operate in this given new foreign market as well as globally coordinate service operations. An expansion process to efficiently develop reliable international net works and systems for service delivery. A phase of management maturity to keep market share and the best human resource on board when products are mature.

Thinking of each dimension physically, we can repre sent the area of focus for developing integrated management systems for overall product functionally as shown in Fig.1. It reveals six key points of intersection for these different dimensions. The design of service policy can only be effectively accomplished in parallel with development of the tangible product, which itself results from a companys given development process. Much as designing the service portfolio leads to the expression of needs- in terms of how the physical product must reflect service objective and constraints- so too designing the tangible product leads to expressing specific needs in terms of technical service support (Fig 2). Consequently, managing service activities over the physical products lifetime is inseparable from managing the lifetime of that tangible object. Coordinated management of the interaction between these different product aspects requires linking the relationship between different activities. In the development process itself, a number of relationship must be established between the different activities that occur over the lifetime of a product. Consider the three-product dimension (refer Figure One) as if they were orthogonal. Each edge of the cube represents a set of activities of the firm. The Globalization Process In general terms, a service company which is willing to expand globally has to go through a virtual five step process including:

Internationalizing a service company brings many issues to the fore. For instance, should the service consider becoming highly standardized or on the country, is it necessary to accentuate their differentiation? Should each country or even groups of countries be assimilated into a profit center or is it possible to identify more appropriate units of measurement for its economic performance. (refer Figure Two) Marketing correct decisions imply that cultural factors as well as the evaluation of political risks be carefully considered from the outset. Moreover, the competition faced in each country should be carefully studied as to the intensity of the rivalry between different local competitors. It is also necessary to identify the level of maturity of the target markets. Often successful approaches in new market are due to recognition of appropriate learning process in the various local markets. Another important area is the search for maintenance of a common culture inside the service company as well as the preservation of the loyalty of the team members. As far as the management of human resources in concerned, the issues of geographical mobility of the

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executives, of homogeneity or not of the remuneration systems, procedures of evaluation and training programmes must all be considered in the process of designing International strategies of large service companies. (refer Figure Three) In entering new markets, both core competence and corporate culture may be strengthened, since efforts to reproduce successful formula abroad can sometimes focus on its characteristics more clearly, thus contributing to a streamlined service management system in home market. The companys image may be enhanced not only in the eyes of its customers but also in the eyes of its staff and potential staff it might wish to attract. Cultural Homogenization and the Emergence of Global Markets There has been debate surrounding the validity of global markets. The new communication technologies are a key influence in the growing homogenization of markets, reducing social, economic and cultural deference including old established differences in national taste or preference. This process is meant so that companies need to examine the growing similarities between consumer preferences. Market segmentation based on lifestyle has been around for a long time globalization extends the concept internationally. Thus, globalization does not mean the end of market segments; it means that they expand to worldwide proportions. Even though service industries are mainly growth industries, many are competing in mature markets where competition is fierce and demand is at replacement level only, or rising only in a few segments, retailing and especially food retailing; airlines in general compared to the business travel segment; even financial services as a growth industry is heavily over supplied. Globalization provides a way out of mature domestic markets once industry restructuring via mergers and acquisitions have been taken as far as they can. The Effect of Technological Development Information technology increases a companys ability to co-ordinate its activities nationally and

internationally. It can provide powerful opportunities to boost service performance and help develop switching and entry barriers that shut out foreign competitors. The airline reservation system provides a classis example of such system bias. To realize the potential scale economiesmany intermediate and large companies in each service industry merged to form giant enterprises. Information technology has also increased capital requirements, thus raising entry barriers. For example, without electronic support system, it is now impossible to compete effectively in many markets, including the money market, multiple retailing and travel. Information technology is at the core of the growing inter-relationships in the financial services, communication, and leisure and travel industries. Companies can deliver better and more varied services with no significant cost penalties. They can simultaneously achieve a high degree of segmentation in their activities and lower their costs. For example, bar code scanners in retailing or computerized reservation systems in airlines or travel agencies, give instant feedback on sales enhance opportunities for greater control over margins, operating cost and patterns of demand. Cost can actually be lowered as development costs are allocated over a broader base of applications or as entirely new services utilize established network for little additional cost. Large scale network effects are very important in service industries, more so than in manufacturing, since additional links increase attractiveness to the consumer (example airlines issue frequent flyer card for the travelers which can be used to purchase any travel related services). Service Industry Growth Concentration The fragmented model of the service industries commonly considered to include services, retailing, distribution and creative business, is defined as possessing: High personal service content, i.e. service must be experienced as individualized and responsive. High labour content

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Hard to routinise High transportation costs (defined as high for services because the product can not be transported, but is either produced at the customers premises or the customer must come to the service i.e. service delivery at the point of sale to the customer. Low entry barriers Diseconomies of scale, for example, where rapid response is required to changes in demand Heavy creative content (difficult to maintain in a large operation) Close local control Product differentiation based on image

awareness in a new market. Currently, there are substantial sum of money being embarked for this purpose. These companies may well increase their promotional activity, drawing upon their extensive resources to support advertising campaigns. It is a widely held opinion throughout the industry that there will be major price war within the next couple of years, led by leading integrated operators. This will tend to squeeze out less efficient operators. When a new company enters a competitive market late, after other company have established name recognition, infrastructure, etc. there are only a few options to increase infrastructure, obtain employees etc. One can either buy existing companies, form franchises or set up a joint venture. A franchise operation provides a mean of overcoming the problems of creating an international network and of establishing contacts in more remote countries. It also allows the express operator to have closely integrated administrative control since there would be a strong contractual relationship between the two parties vis-a vis the local office and the foreign office. Joint ventures have been a recent development within the express industry, this not only provides a larger capital base from which all parties can draw, but may also provide a blend of expertise in specialist technical areas such as knowledge of marketing logistics, computer systems, or simply some operational aspects of the express industry. (refer Figure Four) Conclusion The complexities of global competition mean that companies have to break free of many conventional notions of organization and structures. It has been argued that interdependencies within global companies will differ depending, on the circumstances but that one or more of these alliance should be expected: shared technology; joint distribution networks; related pricing policies; crosssubsidization, or corporate image. In addition the aspects like, global strategy design encourage

While personal service aspects and high image content are still central to service delivery, it is urged that service industry concentration has occurred as a result of fundamental changes in the rest of the key factors listed above. Examples of rapid concentration are the financial service sector or the advertising/communication sector. Service Sector Challenges As an industry becomes global so does its labour market. To retain key staff worldwide, it is important to maintain a strong corporate culture. Airlines make the strongest possible use of corporate identify from coordinated uniforms to the interior colors and designs of the aircraft. Not only does this provide differentiation, but also internal focus for the staff. There is also an ever increasing need to provide greater amount of information to customers who are believed to be more demanding not only with regard to the quality of service, but the level of information provided. It is becoming more and more important to be computerized, to be able to track and trace items in transit quickly and efficiently. There is also a trend towards more electronic data interchange. The costs for marketing are considerable. Extensive promotion is needed to create initial

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competition and risk, flexible products to maintain a balance between quality and profit, learning process for a continuous understanding of customers needs, expansion process for dynamic network building and spreading excellent corporate culture and finally management of maturity through improving management concepts and techniques. References
Thijs Ten Raa and Ronald Schettkart, 2001. Growth of service industries: The paradox of exploding costs and persistent demand. Policy & procedures for investment in service industries by NRIs and OCSs, 1991. Philip H. Bowers, 1994. Managerial economics for the service industries. Yves Sabolo, 1975. Service industries. P.W. Daniels, 1985. Ser vice industries: a geographical appraisal.

Ian Yeoman and Anthony Ingold, 1997. Yield Management: strategies for the ser vice industries. Edited by J.R. Bryson and P.W. Daniels, 1998. Service industries in the global economy. Edited by Peter Jones, 1989. Management in service industries. Richard Normann, 2000. Ser vice management: Strategy and leadership in service business. Har ve Mathe and Roy D Shapiro, 1993. Integrating ser vice strategy in the manufacturers. Richard T Hise, 1977. Product/ service strategy. Edited by Asfaw Kumsaa and Terry G Mcgee, 2001. Globalization and the new regional development. Edited by Fuwa Yoshitaro and Yoshida Hidemi, 2001. Challenge of globalization for international cooperation. Malcolm Waters, 1995. Globalization.

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Figure One : Development Cube for Managing Integrated Product-Service Design

Physical dimension Designing the tangible object and its production process Managing the lifetime of the tangible object

Integrated design of the tangible product and its associated services

Integrated management of the product-service overtime

Time dimension Designing the service portfolio and its delivery system Service dimension Managing the lifetime of the service portfolio

Figure Two : Definition of the Global Service Product

Local Service Provider Local Service Product Local service provided locally for domestic market Transactional service product Transactional service provided locally only

Multinational Service Provider Local service provided by multinationals in various countries Transactional service provided internationally

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Critical Factors Causes Fail ailure Figure Three : Critic al Success Factors and Causes of Failure Characteristics of the Learning Process
Clinical success factors Following existing customers and learning from them Close and loyal customer relationship; commitment to partnership Outstanding international coordination systems Appropriate for professional type of service especially Some explanations for failure In consistency of the mix and quality level of the service worldwide Inappropriate while serving decentralized customers which work very much in accordance with the local culture Insufficient level of investment Incompatibility between companies core product and /or cultures Strong and immediate generalization of corporate procedures Pressure for short term return Try to export original culture on locally acculturate markets Lack of loyalty from local executives agents and employees Buying local operations or co-operating Requires investment, need for capital Smart and sensitive integration of acquired companies (to learn from them) Appropriate for factory type service Going it alone and learning from experience Requires time and patience Hiring local well respected executives Appropriate for services based on adaptable mix or venues

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Figure Four : The critical interdependencies and interrelationships

Objectives Image Power distribution Motivation Attitudes Rewards Promotion Selection Training Job design Style

Core Concept
Structure Distribution Scope Formalization Time management Tools to compete reservice levels Quality measures availability offerings Resource allocation Planning & control

A
Service Delivery

Corporate Culture

B
Service levels Quality measures Support mechanisms Cost management

System Technology

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Incremental Ratings The Incremental Benefits of the Ratings Revolution Revolution for the Banking Industry
Gaurav Kohli

In the financial world a quiet revolution is taking

Inagencys opinion,rating areflects a rating essence, a credit as of specific date,

of the creditworthiness of a particular company, security, or obligation. For almost a century, credit rating agencies have been providing opinions on the credit worthiness of issuers of securities and their financial obligations. During this time, the importance of these opinions to investors and other market participants, and the influence of these opinions on the securities markets have increased significantly. This is due in part to the increase in the number of issuers and the advent of new and complex financial products, such as asset-backed securities and credit derivatives. The globalization of the financial markets also has served to expand the role of credit ratings to countries other than the United States, where the reliance on credit ratings largely was confined for the first half of the twentieth century. Today, credit ratings affect securities markets in many ways, including an issuers access to capital, the structure of transactions, and the ability of Fiduciaries and others to make particular investments, but still certain bias behavior is affecting the reporting of credit rating agencies.

place ratings are becoming a key risk management tool and ratings agencies are now a core source of independent research. With the increased focus on risk management following the high profile corporate scandals in recent times financial institutions are turning increasingly to independent sources of research, such as credit rating agencies (CRAs), to assist in managing risk. In response, the CRAs have expanded their services, customer base and research coverage to offer an independent and more precise view of risk and, in some cases, return. What has changed? Technology is improving the tools used by CRAs to measure corporate risk: Technology has opened up opportunities for some CRAs to take a more scientific / statistical approach to rating both corporates and debt securities. Quantitative analysis that focuses purely on financial fundamentals ignores short term market noise and avoids qualitative bias and a number of other biases that can exist in other research methodologies. However, not all quantitative methodologies are the same for example, some employ historical equity share price data as a starting point. Ratings measure risk on several levels: Ratings have been traditionally used to measure corporate and sovereign debt risk. However, as the need for independent research rises, the services of CRAs are being used more widely, with users ranging from investors to financial institutions, and from business counterparts to industry regulators. Regulation is on the rise: Increased focus by regulators on both CRAs and the financial services industry should improve accountability on several levels. For example, the Sarbanes Oxley act 2002 passed in the United States is expected to

Gaurav Kohli is Assistant Director (Finance). Institute of Productivity and Management, Ghaziabad-201206

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pave the way for new entrants to enter the industry. Given that a number of the major CRAs have there head office in the United States, the act has global implications. As part of a congressional directive under the act, the US Securities and Exchange Commission has been looking into role and function of CRAs. The SEC is reviewing a number of issues including information flow, potential conflicts of interest, alleged anti competitive or unfair practices reducing potential regulatory barriers to entry, and ongoing oversight. Ratings are being accepted by key industry bodies to measure key bank requirements: The Basel committee on banking supervision recommended the circumstances under which banks could use a CRAs rating to meet the requirements of the proposed Basel 2 accord. Banks have an opportunity under the new Basel accord to use external ratings from a CRA. Whilst many banks are improving their own systems, databases and client records in order to prepare internal ratings, and other lack the infrastructure to meet the accords requirements. Facing high compliance costs, many banks are also concerned that their internal systems may not deliver the required outcomes. One solution is to employ a proxy dataset that resembles a banks existing or potential database. Some CRAs have a few decades of reliable data that span a range of industries across various sizes of businesses and countries. Competition is rising: The lack of competition in the CRA industry 1 has resulted in the failure by some of the CRAs to improve there methodologies so as to ensure that major default risks are identified before they occur. By challenging traditional business models (where agencies are paid by the companies that are rated), new CRA entrants are increasing the pressure both on the traditional agencies to improve their

methodologies and on corporates to improve transparency. However challenges exist and CRAs must ensure that they can provide an automated and seamless service and, when required, appropriate datasets that can be used by the banks to rate their own portfolios. Bias beware As noted earlier, ratings methodologies can vary significantly and CRAs also need to ensure their methodologies avoid bias. Some of the bias that exists in CRA methodologies includes: Scale bias: Many CRAs tend to rate only larger companies and tend to give better ratings to larger companies. Brand name bias: Bias can occur in favour of investment grade or brand name companies. Subjectivity bias: Where possible an automated rating approach should be employed to eliminate the subjective bias of an analyst. Potential conflict of interest: This can occur where a CRA is paid by the companies it rates. Flat lining: A number of the CRAs tend to produce ratings that remain unchanged for years. The value of a rating is its accuracy and timeliness in identifying changes in the risk of its company. Use of ratings floors: There is tendency for CRAs to cluster ratings at triple B (BBB) and triple B- (BBB-) to avoid market disruption and self fulfilling prophecies. Absolute risk measurement bias: Some CRAs are often good at determining relative risk but have more difficulty in measuring absolute risk (that is how high, how low and the size of the gap between the companies they rate). Scope bias: Most financial analysts focus on a narrow range of financial ratios, which seriously restricts their ability to

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capture fundamentals. Using a significantly larger set of financial ratios permits CRAs to develop a broader and more precise measure of financial health or distress. It also provides more accurate results through checks and balances for many of the ratios examined. Listed company bias: Many corporate credit rating models are based on listed company data exclusively and ignore unlisted companies. Industry bias: Most models do not take an industry specific approach. Econometric weighting of the likely success or failure with in each industry is an important key to predicting the success of failure of a company. Short term bias: Many models focus on the most recent year in providing analysis. National bias: National weaknesses (in some models there is excessive tolerance of high leverage, e.g . in Japan) can become hidden biases. One unique determinant of default: For the sake of simplicity many academic models assume that there is only one key independent variable which predicts default (such as liquidity, or equity/assets, or debt/assets) or volatility in the rate of return. A more balanced approach is to use a pyramid approach whereby each financial variable being used is rated and weighted, with all the variables contributing to the overall rating. This

overall rating is better predictor of default than any single variable. Default risk is assumed to be constant over time: Some models assume that default risk is constant, risk is variable that reflects changes in the financial performance and position of a company.2

Conclusion Independent CRAs can offer more Independents CRAs have a critical role to play in providing rating services for investors and banks alike. CRAs, who eliminate the biases mentioned above, can deliver more effective credit ratings and provide financial institutions with invaluable assistance with risk/return management. Increasingly ratings and research are now being used across a range of business units with in banks including: private banking, small business, corporate and commercial banking , risk management, marketing departments, share broking, wealth management, and institutional investment divisions. References
The bond market Association, Press release, 29 July 2003: Comments on credit rating agencies: believes significant additional regulatory oversight is unwarranted; urges SEC to encourage competition in the credit rating industry. Jon Danielsson, 2002, Why risk models cannot be trusted, ERisk, March. www.sec.gov

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Floa oat Vivid Colours Float Management: Managing the Vivid Colours of Human Resources
Nancy Dhussa Richa Sethi

Human Resource can bring business to a halt, as

a red light, when it plays the role of an administrator. A red light that is active for a moment can impose the order necessary to prevent chaos and accidents. As such Human Resource administration contributes to efficient business operations by processing personal transactions and making sure payroll runs. When kept on this mode for too long, however, it can lead to paralysis and take a bite out of the bottom line, as the Red colour indicates. Human Resources also indicate caution and puts people on alert, as yellow light. When it plays the role of a manager, Human Resources can ensure regulatory compliance and preserve companys assets. It indirectly contributes to the bottom line by avoiding expenses. Human Resources role as a yellow light can avoid catastrophic damage. When stuck in this mode, though, it can create indecision and slow down the business program. When playing the role of a leader, Human Resources truly acts as a green light which is essential in the companys pursuit of success. In this role Human Resource is clear on what behaviour employees must display to the strategic business plan into concrete result. It uses these behaviours as guide posts to attract, select and train vital talent for the future and the present. As a leader, Human Resource creates the performance appraisals, performance management systems and compensation programs that reward such behaviour. As change agents, Human Resources tracks workforce statistics, on hiring, development of relevant work skills, employee satisfaction, turnover, productivity and correlates this information with the companys financial data to determine the role of human capital. As our race for business growth becomes more competitive, a companys leverage rests on its human capital. When your investors look at your companys human resources, what predominant colour will they see? Human Resource is a discipline and function where quantification in monetary terms is difficult to determine. It is the goal of every business

Asofwith most of the employeesfund your 40-70% your cash probably goes to
employees and benefits. How can you compete in today s economy by maximizing the return on your human capital investment? Start by taking a look at the role human resource plays in your companys race to profitability. When you think of the Human Resource staff in your company do you see a red, yellow or a green light? In this paper we have introduced the concept of Float Management to manage human resources. The term Float Management is predominantly used in Cash Management and various HR researchers use this term to refer to the management of attrition in the company. The company needs to maintain a free pool of employees to manage exigencies in terms of attrition. We are referring to employees who have a propensity to leave. In this concept additional employees are hired in an organization to deal with situations arising due to sudden attrition.

Richa Sethi is Lecturer, BLS Institute of Management, Opposite Mohan Meakin factory, Mohan Nagar, Ghaziabad-201007 Nancy Dhussa is Lecturer, BLS Institute of Management, Opposite Mohan Meakin factory, Mohan Nagar, Ghaziabad-201007

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organization to achieve maximum returns. It is only possible if the organization mitigates the impact of attrition. The focus of our study was to salvage all those organizations, which confront gnawing problems due to high attrition rate. Gone are the days when you thought that your company was a one-stop shop-and that you would get a kick out of retiring from the organization that gave you your first job. In order to be a marketable product, todays generation needs to change at least three jobs in the first six to seven years of their careers. Theres a paradigm shift at the workplace: for the first time in India, the last one year has seen a movement towards an employees market-from the traditional employers market. In the US, a recent survey indicates that 87 per cent Americans want to change jobs. In India, the Monster Meter Poll (of Monster.com) reveals that 51 per cent employees, despite holding on to secure jobs, want a change of workplace. The last 12 months have seen attrition rates double across all industries. Staff retention has become a buzzword in almost all companies with most employers getting worried about staffers quitting at the drop of a hat. Earlier, if you served a company for a long time, it was considered strength. But not any more; these days if you dont change jobs on the trot, you are simply not good enough.1 Quantifying Human Resources has become one of the most challenging and arduous tasks faced by the Human Resource development. Through the concept of Float management we can quantify Human Resource. Float Management is management of human resources by maintaining extra resources in every organization in a way that the right numbers of people are doing the right job at any point of time. So, it is the need of the hour to gauze what is going on in our employees mind and how many of them would leave the organization and when the employees leave, the organization suffers from heavy losses. Float Management By float management we mean maintaining extra resources at any level in the organization to

mitigate the impact of attrition. Usually floats are maintained at the lower and middle work levels in an organization. This concept can be applied to any industry, but is generally more valid where the attrition rates are high for example, Business Process Outsourcing and IT Companies etc. There can be different floats for different organizations depending on the attrition rate. However the point to be noted here, is that the number of floats will depend on the amount of benefits overridden by the costs. Why do we need floats To save the valuable time of the organization, which the organization will spend in searching for new hires. To save the organization from the financial losses. For the smooth working of the organization The organization will be prepared for the rising attrition rate by hiring skilled and efficient and knowledgeable persons in advance. An organization can achieve returns to scale in less time.

Float Model Let number of officers in a unit =x Let attrition rate=q% per annum Let T months be the average time of search for replacement Define void cost ,v ,to be cost to the company if an officer post is unoccupied for a month Total void cost to the company in a year= (q/ 100)*x*T*v Let Differential cost of replacement for one officer (including recruitment, training and ramp up of new officers) =R Annual cost of replacement = (q/100)*x*R Therefore, annual cost to the company due to attrition

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=Annual void cost + replacement cost = (q/100)*x*T*v+ (q/100)*x*R Suppose now, that f% float is built into this system, i.e, x*(1+f/100) officers are hired instead of x Annual cost of retaining extra hires(s is salary per month) = (f/100) x*s*12 Void cost becomes zero Cost of replacement is reduced drastically The float system will be feasible if Annual cost due to attrition with float system < Annual cost due to attrition without float system, OR (f/100)*x*s*12< (q/100)*x*T*v+ (q/100)*x*R Or f<q*(T*v+R)/12* Utility of this model To decide whether maintaining floats will be feasible(only if f is +ve) Float must be build only if f is considerably large (say >10%) How much float? will be decided by f

Resources, commercial and legal can be very tricky.2 Conclusion We should be ready enough for the challenge to combat the crisis before the crisis befalls on us. We aimed at providing all the organization with sufficient knowledge of float management so that they can deal with the up surging problems and challenges of attrition. It is sacrosanct truth that there is survival of the fittest. So even in business organization, only those will survive who will change themselves according to the changing environment. Because only one thing is constant in this business world and that is change. In order to survive in this competitive business world full of challenges we also have to be prepared with new emerging HR concepts like Float management. References
Philips, J.J. Handbook of Training Evaluation and Measurement Methods, 3 rd Edition, Houston ,TX: Gulf Publishing, 1997. Philips, J.J., How Much is the Training Worth? Training and Development, Vol.50, 1996. Spencer, L.M. and Spencer S.M., Competence at Work, NY: John Wiley and Sons. Decenzo , David, Robbins Stephen, Human Resource Management, Sixth edition, NY: John Wiley and Sons. 2Review of Professional Management, Volume 3 Issue 2(July- December-2005) 1The Hindustan Times 18th December,2005.

Working out the above model needed a lot of data which is currently not available. Such a model is easy to apply to the sales and marketing field force where void cost can be said to be the amount by which the sales revenue will fall as a result of one person less in the team. However, calculating void cost for functions like Human

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Power Influences Fashion The Power and the Influences of Fashion on Generation Generation Y
Makarand Upadhyaya Ms. Swati Soni

Every generation has their own style; something

that sets them apart from the previous generations. So why does Generation Y choose to wear the clothing that they do? Of course we dont want to dress like our parents, but there are other factors involved in developing the style of a generation. Marketing, advertising, and the media all try to influence the way our generation dresses. Their reasons are mainly profit based. We also make our clothing choices based on the Functionality of the garment. Consumers of our generation often look at the comfort, durability, and adaptability of a piece before purchasing. History has had a great influence on the look of most clothing worn today. Clothes reminiscent of the past are often known as retro which has become one of the signature styles of Generation Y. Clothing also helps us to express ourselves. Youth often choose clothing to reflect their unique personality. Branded as Consumers Marketing is a very influential factor. Generation Y is the most targeted group of people today. The fashion trends of the day are pushed onto kids through the media. Through television, magazines, movies, and teen idols, todays youth are told what to wear to be cool. As Generation Y, we are 63 million members strong and spend more than a billion dollars annually. With such spending power it is easy to see why companies choose us as their target market. We have grown up in a consumption culture are taught that (we) will be satisfied if we purchase products to fill our wants and desires. Perhaps this need to buy things is only a progression after the 80s decade of selfindulgence. Or it may be a reaction to the simplicity of life in the 60s, our parents generation. Whatever the reason, we are a generation that loves to shop. The youth of today are extremely brand loyal. According to International Research Group, the use of brand names is the second most effective

Marketing, advertising, and the media all try to influence the way our generation
dresses. Their reasons are mainly profit based. We also make our clothing choices based on the Functionality of the garment. Consumers of our generation often look at the comfort, durability, and adaptability of a piece before purchasing. The present paper throws management on the power and the influences of fashion on generation.

Makarand Upadhyaya is a Senior Faculty, Marketing at ICFAI Business School (IBS), Jaipur. Ms. Swati Soni is a Faculty, Marketing at IILM, Jaipur.

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advertising method when targeting teens. Only the giveaways of products like CDs and posters of popular brand names surpass this. Brand names serve as status symbols. To have Peter England or Wills Lifestyle showing on ones clothing is to be recognized as cool. And, while sporting those brand names, we are also endorsing that brand. What better than to have everyday kids advertising for a company? Unfortunately, due to global youth marketing, teen tend to dress much the same. With a large portion of our generation looking the same, a good way for individuals to stand out is through what they wear. While 50% of teens are buying only brand names Peter England, what is the other 50% buying? Breaking away from brand names, a current fashion trend is the rise of retro History Repeats Itself History plays a large part in todays fashion trends. Many styles of today copy the past. Retro is clothing influenced by styles from throughout history. Generation Y is notorious for bringing back the fashions of previous generations. In fact during the final decade of the 20th century, fashion revivals almost caught up with themselves. In the early 1990s the styles of the late 1960s and early 1970s were inspirational, and by the mid 1990s aspects of 1980s fashion were already being recalled (Mendes and de la Haye). Everything from twin sets to bellbottoms and geometric prints have been making a comeback. Even the highly criticized heavy metal look of the 80s is popular again. The histories of other cultures are also influencing the style of our culture. As our generation becomes more globally minded, so too is the demand of globally induced fashion. Mendes and de la Haye comment that designers in the 90s were inspired by communities whose garments and bodily adornment were not shaped by international fashion trends. Designers reinvented the traditional dress of many nonwestern cultures, which them was widely adopted by consumers. However, a few observers

commented that marketing Indian ethnic fashion in such a way reduced nonwestern cultures to little more than the latest style statement It seems that although retro and cultural fashions are becoming all the rage, most trendsetters actually have very little sense of the actual history behind the clothing. Images of the past exist only to be cannibalized and stripped of original meaning. We are left with meaningless retro babble (Steele, p. full of ethnic and historical influences but nothing we can actually identify with. Going Global We seem to be defendant on the ideas of previous generations and revert back to their style rather than inventing our own. Will there ever be a definite 90s style? As Valerie Steele, author of Fifty Years of Fashion stated, we seem to be as afraid to face the future as (we) are to let go of the past. One thing we have become is technologically advanced, and has become incorporated in our clothing. Fashion in the Grip of Technology Technological advances are, in fact, one of the few ways that fashion can be truly modern. New textiles have been created from natural textiles combined with glass, metal, and carbon dioxide creating new lightweight hybrids often used for athletic clothing. Silicone coating is also being used, especially on swimming suits (Mendes and de la Haye. As science becomes more advanced so too does fashion. Functionality has spread from athletic clothing to everyday clothes. Multi purpose clothes such as pants that zip off into shorts and double sided clothing that can be turned inside out and worn. The novelty may be greater than the actual usefulness of these types of garments but they represent the attitude of Generation Y toward clothes: they should be adaptive, like us. Comfort is also important in choosing clothing.

27

Generation Y, in my opinion, is one of the most comfort oriented generations yet. Generations before us had trend such as corsets and layers to tight jeans and heavy jewelry. We choose our clothing based on how we feel in them. Shoes and jeans for example are always being redesigned for comfort. However, this ease may come at the price of beauty. Joan Nunn, author of Fashion in Costume said, it seems unlikely that the people of the western world will ever again adorn themselves in the complex and elaborate manner indulged in by their ancestors). We are What We Wear To todays generation, choice of clothing reflects ones personality. In essence, we are what we wear. Many young people spend hours in malls or online selecting clothing that will express them. They try on personalities and choose products that help define themselves. People often wear clothing that reflects moods, health, and especially their individuality. So what you see on the outside may be what is inside as well. Identity is very important to Generation Y. Kids want to be able to identify themselves with a group of people. The way I dress could be a good indication of what group I identify with. For instance if I was wearing oversized pants, Airwalk shoes, a logo Tshirt, and a chain hanging out of my left back pocket, I would probably identify with skaters. Even if I did not actually skateboard, as a poser I would give the impression that I did (Skaters Spark new Style). While dressing a certain way can help youth to identify with a group it can also help to individualize them. Our generation is struggling to make a place for itself. Young people are always trying to find ways to disrupt the ideological and generational oppression in order to create spaces for themselves (Youth Subcultures). By rebelling against conforming older generations, Generation Y will develop an image of its own and become independent.

Appearance after all is one of the main factors of how people see you. We are judged, and judge others, on appearance. Youth today has learned this and uses clothing to indicate how they want to be seen. Goths for instance dress in all black clothing , usually of a romantic style. Stereotypically, they are prone to have a variety of wild hair colors, piercing, and heavy makeup (Goth). Because of the stark difference from mainstream fashion, Goths are easily recognized and give others a serious and almost scary impression of them. Clothing alone can give someone any personality they wish. Negotiating Media One of the key factors in generational change is the media. Right now the media is catering to Generation Y more than any other because we are their largest source of income. In return the media sets for us a standard of dress. The media gives us our movie stars, musical artists, and teen idols. We mimic the way they dress because; we too, want to be stars. It is difficult to tell whether music influences fashion or vice versa. For instance, rap stars often wear their oversized FUBU jerseys and large gold chains. Pop stars have their bright colors and glitter. Grunge and punk have become both musical categories and definite fashion statements. Which came first the music or the style? I think that when an artist has a very distinctive look, those who identify with the music attempt to emulate him or her. Imitation is another factor in choosing our style of dress. If we see someone, whether famous or otherwise, with a look that pleases us we wish to imitate that style. Everyone may add their own unique touches, but much of our choices involve imitating someone else. Conclusion I think that Valerie Steele put it well when she said, it is difficult to identify the fashions of a decade while it is still in progress. While it is easy for us to pick out the key sources and styles

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of previous generations, it is much more difficult to do the same with the current one. The factors and fashions that I feel are important today may not be the same ones that generation Y will be remembered for in the future. Perhaps in ten years we can look back and know exactly why our generation chose to dress the way we did. References
College and Teen Marketing. Market source h t t p : / / w w w. m a r k e t s o u r c e . c o m / c o l l e g e / teenBuying.asp (9 Apr. 2001)

Consumer Mind Reader #6, How Teenagers Are Influenced by Advertising. Americas Research Group http://www.predator y.com/ mr98_6.html (9 Apr. 2001) Youth Subcultures and the Commitment Level Model. http://www.youth.co.za/model/ subcult1/htm (20 Mar. 2001) Yo u t h i n t h e T h i r d M i l l e n n i u m . A Re s e a r c h Pr o j e c t : Pa r t 2 . h t t p : / / www.youth.co.za/model/youth3mb.htm (18 Mar. 2001)

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Application of Capital Asset Pricing Model In Applica Capital Asset Pricing National The National Stock Exchange (NSE-India)
Dr. Sudhindra Bhat
1. Introduction

Capital market has become an integral part of

economies of most of the countries. The way securities are priced in capital market has attracted the attention of researchers for long. Investment in securities market requires the study of the relationship between risks and returns. Researchers in securities market have attempted to understand the relationship between risk and returns and the way securities are priced in the market. These researchers have assumed rational investors and constructed the general equilibrium models of security prices and returns. Sharpe(1964), Lintner (1965) and Mossin (1968) have independently developed the standard form of general equilibrium model for asset returns in securities market. This model has come to be known as Sharpe-Lintner-Mossin form of Capital Asset Pricing Model (CAPM). This model is based on many assumptions about capital market. However, it has served to understand the complex relationship between securities returns and risks. The studies conducted by Brennan(1971), Black(1972), Fama and Macbeth(1973), Fama (1976), Elton and Gruber (1978,1996), Pettit and Stanley (1979), Mayers (1972), Brito (1977,1978), Lintner (1969,1971), Sharpe (1970), Gonedes (1976), Black, Jensen and Scholes (1972), Blume and Frank (1973), Blume and Irwin (1973), Litzenberger and Ramaswamy (1979), Gibbons and Wayne (1985), Shankan (1985a,1985b,1987), Fama and French (1992,1996) have focused on some of the issues related to CAPM. Research findings of these studies have been debated again and again. The empirical evidence against the CAPM by Fama and French (1992, 1996) has generated a lot of debate in the west and has called for major re-examination of the CAPM model. While many studies have been conducted on CAPM in the capital markets of the western countries, there are a few studies in the Indian context. Studies by Varma (1988),Yalwar (1988), Srinivasan (1988), have generally supported the CAPM theory. Studies by Basu (1977),Gupta and Sehgal (1993), Madhusudhan (1997), Sehgal (1997), Ansari (2000) have questioned the validity of CAPM in Indian markets. But Ansari (2000) have

nvestment in securities market requires the study of the relationship between risks and returns. Researchers in securities market have attempted to understand the relationship between risk and returns and the way securities are priced in the market. These researchers have assumed rational investors and constructed the general equilibrium models of security prices and returns. One of the models that have been constructed to understand the differences in the returns of securities is the capital asset pricing model (CAPM). CAPM asserts that the non-diversifiable risk alone is important in the portfolio formation process as the diversifiable risk can be eliminated. Thus this model advocates that the security beta explains the differences in the returns. Further, the standard form of CAPM predicates that when CAPM holds, the intercept should be zero and the slope of the CAPM should be equal to the difference the market returns and the risk-free rate of returns. Further, this model also asserts that there is a direct relationship between beta and returns of the securities. Several studies which have been conducted have reported conflicting results. Therefore, the debate on the validity of the CAPM in the Indian market continues. This paper tests whether CAPM holds in the Indian market by applying the test for the intercept and the slope of the standard form of CAPM. The results of the study indicate that intercept is significantly different from zero and the slope of the model approximates the relationship expected by the CAPM. This result is contrary to what is expected in the CAPM. Therefore, we conclude that CAPM holds good based on the test for the slope while it does not hold based on the test for the intercept. Keywords: CAPM, Intercept (Alpha), Beta, Risk-returns, Risk-free Returns, Market Returns.

Dr. Sudhindra Bhat is Associate Professor, Institute of Finance and International Management Bangalore.

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opined that the studies of CAPM on the Indian markets are scanty and no robust conclusions exist on this model. In the light of these findings, a sample 49 companies that constitute the Index of the National Stock Exchange, Mumbai (NSE) have been selected for studying whether the standard form of CAPM holds in the National Stock Exchange. The paper is organized in four parts. Part 1 is the introduction; part 2 deals with objectives, hypotheses, data and methodology; part 3 focuses on the analysis of the results; part 4 presents the summary and conclusions. Part 5 gives the references and part 6 presents the Tables. 2. Objectives, Data and Methodology 2.1 Objectives: This study is undertaken with the following objectives: To ascertain the relationship between returns of securities and market returns. to test the empirical validity of the standard CAPM in the National Stock Exchange.

Ho2: The slope in the CAPM is equal to the difference between the market return and the risk-free rate of return (Rm-Rf). Ho3: The intercept (Alpha) in the CAPM is zero. Ho4: The Beta of securities in the time series regression is significantly different from zero. Ho5: The Alpha of securities in the time series regression is not significantly different from zero.

2.3 Sample: The sample for this study is 49 companies, which are listed on the NSE and included in NSE Nifty index, referred to as the Index. Nifty is used as the market index. 2.4 Data: The daily closing prices of the companies and the Nifty were taken from the Capita-Stock database and NSE websites. The daily Price data for the period November 22, 1995 to July 22,2005 were collected to estimate Alpha and Beta of the Model. The daily prices have been adjusted for stock split, bonus and right issues etc. The sample size represents the broad spectrum of aggregate wealth. The risk-free rate of return is taken as 8.22 % per annum (0.022833% per day), which is the average yield on Government of India securities for the study period. Since this is the maximum rate of returns an investor can get without assuming any risk, this rate has been chosen as risk-free rate. 2.5 Methodology Time series regression CAPM test consists of Time Series regression for each security and a simple regression is run over time. Over the years, researchers have used quarterly, monthly, weekly or daily data to study the empirical relationship in the CAPM. We feel that quarterly, monthly, weekly data do not provide more meaningful relationship between risk and return and, hence, daily prices/indices were used in this study. The daily returns of the

2.2 Hypotheses: The findings of many of the western researchers have supported the CAPM. But the more recent findings of Fama and French have doubted the validity of the CAPM. Researchers are still working to find the reasons for contrary conclusions by Fama and French. Srinivasan(1988), have generally supported the CAPM theory based on the test of the standard CAPM model. Studies by Basu (1977), Gupta and Sehgal (1993), Madhusudhan (1997), Sehgal (1997), Ansari (2000) have questioned the validity of CAPM in Indian markets. Based on the available evidence on the CAPM, the hypotheses are formulated for this study. Varying conclusions reached by the researchers in the west and in other countries has made the testing of CAPM still contemporary. Therefore, the following hypotheses are proposed to be tested in this study. Ho1: There is a positive relationship between the returns on securities and their Betas in the CAPM.

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securities and the market for the period are regressed by taking the company returns as dependent variable and the market returns as the independent variable. The average returns of companies and market are calculated using the arithmetic mean. The daily returns are calculated using the following models:
R it= Pit - Pit-1 Pit-1 R mit= Iit - Iit-1 Iit-1

Where, R i = Expected return on Security i; a i = Intercept of a straight line or alpha coefficient of security i, bi = Slope of a straight-line or beta coefficient of security i; Rm = Expected return on index m, ei = Error term with mean zero and a standard deviation which is constant. This term captures the variations in security i that are not captured by the market index m ; sm = Standard deviation of market index m, sm2 = Variance of market index m. Beta is calculated using the following formula:
N N

Mean return of security i is given by:

SRit
t =1 N

R i=

...(2)

NSRmtRit - (SRmt) (SRit) Beta = i =

t=1 N
2

t=1

t=1 N 2

...(5)

Mean return of market m is given by:

SR mt
t =1 N

N(SR mt) - (SR mt)

t=1 t=1

Alpha = a i = (Rit - iRmt)

...(6) ...(7)

R m=

...(3)

t value =

Deviation from the population mean Standard error of the sample mean
2 2 2 2

Where, Rit = Return on security i during time period t.; Rmt = Return on market index (NSE Nifty Index ) m during time period t. Pit = Closing price of security i for time t ; Pit-1 = Closing price of security i for time t-1, Iit = Closing value of market index corresponding to the period of security i for time t, Iit-1 = Closing value of market index corresponding to the period of security i for time t-1, N = Number of observations (returns) The following market model is used to represent expected returns on security. The realized returns are used as the measure in place of expected returns. The risk measures like beta, Alpha are calculated using this model.
Ri =a i+ iRm+ei, for i = 1, ...N Mean of (ei) = E (ei)=0
2 2

Total Risk of i is: s i = i s m + s ei

...(8)

Systematic Risk + Unsystematic Risk Total Risk = N = Number of pairs of observations

...(4)
2 2 2

Variance of ei = E (ei ) =s ei ;
2

Variance of Rm = E (Rm - R m) = s m

Variance of Security i is : s i = i s m2 + s ei2

Given the assumption of market model, equation (4) is used as the regression equation in terms of the realized returns for the period November 22, 1994 to July 22,2004. If CAPM and equation (4) are valid, then the intercept (ai) will not be significantly different from zero. Thus a direct test of the CAPM is by estimating equation (4) for a security over the time period and testing to see if ai is equal to zero. Further, the CAPM assumes that there is a direct relationship between the security returns and their beta. If this assumption is true, we expect the beta of securities in the time series regression described above to be significantly different from zero. Therefore, we test whether betas of securities are significantly different from zero. The intercept (ai) and Beta (bi) measures and their corresponding t-values are presented in Table 1.

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3. Results and Analysis Alpha and Beta of individual companies based on time series regression: CAPM model depicts the direct relationship between returns and beta. Investment in equity market presupposes the existence of risk for which higher returns are expected. Further, investors in equities and market index expect higher returns than risk-free returns in the long run. Therefore, if the CAPM is true we expect the beta values based on the time series regression to be significantly different from zero and the intercept term (Alpha) to be closer to zero. The values of alpha and beta for 49 Nifty companies presented in Table 1 are tested for this relationship using the t-test. The level of significance used is 5 percent. The results show that in 42 of the 49 companies the alpha is not significantly different from zero. Only in the case of seven companies, Hero Honda, Sun Pharma, HDFC Bank, Infosys, Wipro, Satyam and Punjab National Bank, the alpha is significantly different from zero. This indicates that in 85.71 percent of the cases the alpha value comes closer to zero as expected. Therefore, the results indicate that the alpha is zero. The results of testing for beta at 5 percent level of significance show that in 46 out of 49 companies the values of beta are significantly different from zero. Only in cases of three companies, GAIL, ABB and Reliance Energy, the values of beta are not significantly different from zero. Therefore, the tests for CAPM indicate that the beta and returns are significantly related and the positive relationship between beta and returns is accepted. 4. Summary and Conclusions Investments are made in stock markets in expectation of returns in excess of the risk-free rate. Over the years, researchers have worked to find the relationship between risk and returns. One of the most important contributions by researchers in the securities market is the establishment of the relationship between returns and risks by way of CAPM. Ever since the SharpLintner-Mossin proposed the CAPM, a large

number of studies have been conducted to test the CAPM. Although there are a lot of studies on the western market, the number of studies on the Indian market are limited. This paper has attempted to test the validity of CAPM in the National Stock Exchange. This study reveals mixed results on the validity of CAPM in the Indian context. Time series regression for the individual company returns and market returns leads to the conclusions that the intercept values are not significantly different from zero (except 7). These results also reveal that beta is significantly different from zero (except 3). Therefore, the time series regression results of the individual company support the tendency of CAPM holding good for the National Stock Exchange. The overall trend indicate that the spirit of CAPM seem to hold based on the slope test but the intercept values are larger than those predicted by the CAPM. . The alpha and beta test for individual companies based on time series regression point towards the acceptance of the CAPM. References
Ansari, Valeed A, Capital Asset Pricing Model: Should We Stop Using It, Vikalpa,Vol.25 (January-March,2000), PP 55-64. Basu S, The investment Performance of Common Stock in relation to their Price Earning Ratio: A Test of the Efficient Market Hypothesis, Journal of Finance,Vol.32 (1977), PP 663-692. Black F, Capital Market Equilibrium and Restricted Borrowing, Journal of Business,Vol.48, No.3, (July ,1972), PP 444-445. Black F, Jensen,M.C and Scholes, M, The Capital Asset Pricing Model: Some Empirical tests,, in Jenson(ed.), Studies in Theory of Capital markets, (Newyork: Praeger,1972). Blume, Marshal and Friend,Irwin, New look at the Capital Asset Pricing Model, Journal of Finance,V ol.XXVIII, No.1(March 1973), PP 19-33. Blume, Marshal and Husic ,Frank, Price, Beta, and Exchange Listings, Journal of

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Finance,Vol.XXVIII, No.2 (March 1973), PP 283-299. Brennan, Michael J, Capital market Equilibrium with Divergent Borrowing and Lending Rates Journal of Financial and Quantitative Analysis Vol. No.5 (Dec.1971), PP 1197-1205. Brito ,O Ney , Marketability Restrictions and the Valuations of Capital Assets under Uncertainty, Journal of Finance,Vol.XXXII, No.4 (Sept 1977), PP 1109-1123. Fama E and J MacBeth , Risk, Return, and Equilibrium; Empirical Tests, Journal of Political Economy, Vol. 81 (1973), PP 607636. Gupta O P and Sehgal, Sanjay, An empirical testing of Capital Asset Pricing Model in India Finance India Vol. 7 (December 1993), PP 863874. Lintner, John, Security Prices, Risk, and Maximal gains from Diversification, Journal of Business , (October 1965), PP 294-419. Litzenberger, R.H., and Ramaswamy, K, The Effect of Personal taxes and Dividends on Capital Asset Prices: Theory and Empirical Evidence,

Journal of Financial Economics (June 1979), PP 163-195. Madhusoodhan T.P, Risk and Return: A new look at the Indian Stock Market, Finance India 1 (June 1997), PP 285-304. Mayers D, Non marketable Assets and Capital Market Equilibrium under Uncertainty , in Jensen,M.C,(ed.), Studies in Theories of Capital Markets, (Newyork: Praeger,1972). Sehgal Sanjay, An Empirical Testing of Three parameter Capital Asset Pricing Model in India, Finance India, Vol.11, No.4 (Dec.1997), PP 424442. Shanken,J, Multi-Beta CAPM or EquilibriumAPT? A Reply , Journal of Finance, 40(1985a), PP 1186-1189. Sharpe,W .F Capital Asset Prices: A Theory of . Market Equilibium under conditions of Risk,, Journal of Finance, Vol.19 ( Sept 1964), PP 425442. Srinivasan S, Testing of Capital Asset Pricing Model in Indian Environment, Decision, Vol.15(January-March1988), PP 51-59. Websites: www.nseindia.com, www.indiainfoline.com

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Beta, t-val alues Companies Table 1: Alpha, Beta, and t-values of Companies for time series regression.
C. No. Companies 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 Gas Authority of India Limited. ABB Reliance Energy Ltd. Tata Motors Ltd Associated Cement Cos. Ltd. Britannia Industries. NALCO HDFC. Indian Hotel. Hero Honda Oil Natural Gas Commission BPCL VSNL Hindalco Colgate. Dabur Sun Pharmaceuticals Hindustan Lever Ltd. Bajaj Auto Ranbaxy Laboratories Ltd. Bharati tele-venture Galxo Cipla SCIL HPCL Grasim HDFC Bank Ltd. DRs Reddys Lab Gujarat Ambuja Cement ITC Ltd. I C I C I. Tata Tea Tata Chemicals. Oriental Bank of Commerce. Mahindra and Mahindra Tata Power Mahanagar Telephone Nigam Ltd. Zee Telefilms BHEL SAIL Infosys State Bank of India Reliance Ind. TISCO IPCL WIPRO Satayam Punjab National Bank H C L Technologies Not Significantly different from zero Significantly different from zero Beta arranged in Beta Intercept Intercept ascending order t-value t-value -0.028391 -0.5975 0.092734 1.177395 -0.011304 -0.3479 0.032676 0.615818 -0.003932 -0.11181 0.08782 1.530123 0.2821912 7.392584 0.037007 0.595982 0.3280868 8.972567 0.023921 0.402325 0.3476441 12.67302 0.05509 1.224149 0.479168 11.25362 0.087296 1.256125 0.5676787 19.87102 0.056438 1.214216 0.5812499 22.36617 -0.00908 -0.21449 0.5894116 16.88611 0.123111 2.162287 0.6031309 16.69697 0.039256 0.659148 0.6157601 16.06951 0.03841 0.614304 0.6196402 11.72948 0.011535 0.131381 0.6309913 23.87681 0.017669 0.411 0.652271 30.013 -0.04247 -1.2015 0.6523399 29.94932 -0.04328 -1.22142 0.6586483 18.34678 0.116533 1.98638 0.6681834 29.18857 0.02017 0.541667 0.6824534 28.3077 0.030787 0.785184 0.6930037 25.56816 0.058341 1.32185 0.6931999 8.057454 0.196203 1.555237 0.693574 25.74167 0.038925 0.888285 0.701507 21.91931 0.056003 1.075497 0.7299949 13.17369 0.076316 0.820566 0.738446 21.72526 0.014334 0.2587 0.7936447 25.79806 0.027248 0.544037 0.8264946 28.39455 0.096503 2.025428 0.8560153 26.97438 0.06516 1.261996 0.8616105 31.18466 0.018539 0.412128 0.9447374 36.93341 0.047381 1.138703 0.9546419 21.14388 0.125987 1.656807 0.9597168 33.50877 0.012643 0.271095 0.9636613 33.26318 -0.02654 -0.56333 0.9701271 32.38982 0.069259 1.41603 0.9771886 29.77568 0.039826 0.745165 1.005883 27.23282 0.000186 0.003103 1.0417642 33.11996 0.002299 0.044803 1.0444752 21.78885 0.11502 1.468524 1.0509903 30.48656 0.067885 1.206963 1.0665736 23.39303 0.020001 0.269722 1.1006503 30.20136 0.181041 3.041033 1.1070339 46.5861 0.044662 1.155652 1.1400949 45.66381 0.032907 0.810411 1.1420061 42.16798 0.018485 0.419654 1.1425245 35.32123 0.026835 0.510097 1.1457189 24.07989 0.181897 2.293961 1.3119701 30.45308 0.176559 2.508799 1.3162483 14.11921 0.294192 2.119239 1.583734 22.47202 0.002479 0.021954 03 42 46 07

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Table 2:
Sr. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49

companies industry category List of companies studied and industry c ategory

Company Name Associated Cement Cos. Ltd. ABB Bajaj Auto Ltd. Bharat Heavy Electricals Ltd. Bharti Tele-Ventures Ltd. BPCL Britannia Industries Cipla Ltd. Colgate Dabur India Ltd. Dr. Reddy'S Laboratories Ltd. Gas Authority of India Ltd. Glaxosmith Pharmacy Grasim Industries Ltd. Gujarat Ambuja Cements Ltd. HCL Technologies Hero Honda Motors Ltd. Housing Development Finance Corp Ltd. HDFC Bank Ltd. Hindustan Lever Ltd. Hindalco Industries Ltd. Hindustan Petroleum Corpn. Ltd. Indian Hotel I C I C I Bank Ltd. Infosys Technologies Ltd. IPCL Indian Tobacco company Ltd. Mahindra and Mahindra Mahanagar Telephone Nigam Ltd. National Aluminum Oil & Natural Gas Corpn. Ltd. Oriental Bank of Commerce Punjab National Bank Ranbaxy Laboratories Ltd. Reliance Energy Ltd. Reliance Industries Ltd. Steel Authority of India Ltd. Satyam Computer Services Ltd. State Bank Of India Shipping Corporation of India Ltd Sun Pharmaceuticals Tata Chemicals Ltd. Tata Motors Ltd. Tata Power Co. Ltd. Tata Iron & Steel Co. Ltd. Tata Tea. Ltd. Videsh Sanchar Nigam Ltd. Wipro Ltd. Zee Telefilms Ltd. Industry category Cement Switches Automobile Engineering Telecommunication Petroleum Fast Moving Consumer Goods Pharmacy Fast Moving Consumer Goods Fast Moving Consumer Goods Pharmacy Gas Pharmacy Cement Cement Information Technology Automobile Housing Financial institution Banking Fast Moving Consumer Goods Steel Petroleum Hotel Banking Information Technology Petroleum Fast Moving Consumer Goods Automobile Telecommunication Aluminum Oil and gas Bank Bank Pharmacy Power Textile and Petroleum Steel Information Technology Bank Shipping Pharmacy Chemicals Automobile Power Steel Tea Telecommunication Information Technology Entertainment

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Famil Business Problems: amily The Indian Family Business Problems: Global Perspective A Global Perspective
Dr. C Rajendra Kumar

Indian business

is overwhelmingly owned and

Indianmanaged byoverwhelmingly family business is owned and families. Is a

firm necessarily at disadvantage versus a professionally managed firm? Will an economy based on smaller family business grow slower or be disadvantaged compared to one based on large professional companies. Even if a family firm is not a disadvantage, it must be able to separate the familys interest from the interest of the business. Have Indian firms been able to achieve this separation? Does the joint family offer a competitive advantage to Indian Business? Why is the Indian joint business family dying? Recent Reliance - Ambani Brothers Feud a classic example, why have most of the joint families separated in the last decade? Why do Indian companies have such a hard time retaining professional outside talent? Why is there a cultural resistance among Indian firms to institutional alive themselves? Will they be able to become professionally managed corporations of the kind, which exist in Japan and the United States? This is a broad canvas made-up of large issues. The treatment of each issue will necessarily be scoift, which need to be validated by empirical research.

managed by families. Is a family firm necessarily at disadvantage versus a professionally managed firm? Will an economy based on smaller family business grow slower or be disadvantaged compared to one based on large professional companies. Even if a family firm is not a disadvantage, it must be able to separate the familys interest from the interest of the business. Have Indian firms been able to achieve this separation? Does the joint family offer a competitive advantage to Indian Business? Why is the Indian joint business family dying? Recent Reliance Ambani Brothers Feud a classic example, why have most of the joint families separated in the last decade? Why do Indian companies have such a hard time retaining professional outside talent? Why is there a cultural resistance among Indian firms to institutional alive themselves? Will they be able to become professionally managed corporations of the kind, which exist in Japan and the United States? What are the characteristics that successful Indian companies are exhibiting today? What is the role the joint ventures should play in their strategy? Classic example of godrej and P&G joint venture. What infact, is the best strategy suited to Indian firms? Finally, can a family-run business survive the competitive demands of the post reform scenario? Can they overcome their historic weakness? Can Indias family business firms deliver the goods in a global scenario where the nations economic success is increase the success of its companies? This is a broad canvas made-up of large issues. The treatment of each issue will necessarily be scoift, which need to be validated by empirical research.

Dr. C Rajendra Kumar is Director, Godavari Polymers Pvt Ltd, Hyderabad

Family Business Firms Are Not Necessarily Bad Indian firms, by and large, continue to be familyrun. And that, too by the Bania families of the

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traditional trading castes. It is predominantly the Aggarwals and Guptas in the North, the Chettiars in the South, the Parsees, Gujarati Jains and Banias, Musilm Khojas and Memons in the West, and Marwaris in the East and infact, across the country. Of there, the Marwaris have been the most successful. Fifteen out of the twenty largest industrial houses in 1997 derived from the Vaishya or Bania Trading Castes. Eight of them are Marwaris. Of the 128 merchant Marwari sub-castes in Rajasthan, only five become big and prominent in national commerce. These were the Maheshwaris, Oswals, Aggarwals, Porwal and Khandelwals. Todays industrialists, thus rose from the bazaar, their roots in industry are relatively recent, going back largely to the First World War. Before that they were traders and money lenders engaged in the hustle and bustle of the bazzar.Even in Mumbai and Ahmedabad in Western India, where the cotton textile mills came up earlier in the last half of the 19th Century, it was the trading communities who become industrialists. They were Parsees, Khojas, and Bhatia Traders of Bombay and Jain Banias in Ahmedbad. That Indian firms are largely family run does not survives. Even in US the most professionalised business nation, 40% of GNP is still created by family companies and more than 80 per cent of all enterprises are family-run. We forget that in most countries much of retail trade, small industry and all manner of services are in the hands of the family, from the corner stone to the most hightech manufacturing. Many Indian family firms are nervous today because they are afraid that a family-run business will not able to cope with competitive demands of the past-reforms global scenario. They should feel reassured by the persistence of the family business in advanced societies. Many of us have acquired a distorised view of economic history. In this destroyed picture, economics are dominated by massive corporations that are listed on stock exchanges and owned by an army of dispersed investors the family firm is often potrayed as little more than an early point on graph of corporate evaluation.

The reality, in fact is that family firms still dominate business life around the globe, and they are especially important in the emerging markets of Asia and Latin America. One such firm in US Cargil, has managed to grow into a giant multinational corporation employees 80,000 people, with sales of $75 billion and established in India also, and it still remains a private family firm. Even among industrial countries there are remarkable differences, Germany, Japan and the US were quick to adopt the corporate form of organization as they industrialized in late 19th and early 20th century and today their economics are hosts to giant professionally managed companies live. Siemens, Toyota, Ford, Motorola, Virgin are initially stared as family firms and continue too be same. India, too is dominated by small, family-owned and family managed business. With exception, the appears to be a cultural resistance among. Indian firms to corporate them. The difficulty experienced by Indian business in institutionalizing themselves into large professionally run corporations may shut then out of certain sectors, which demand scale and certain strategic types of technology. Family Firms Must Be Able To Professionalise The success of the Italian, French and Chinese small enterprises suggests that a being a family firm is not necessarily a disadvantage. However, a successful family firm must be able to professionalize. It must be capable, for example, of recruiting and retaining outside professional talent. In a competitive world, it must be able to get the best person to run the company. If the family member is not the best person, then it must be willing to hand over the management to outsider. The professionalize means that the family must make the mental leap and separate ownership and management, and distinguish between the familys interest and the companys interest. Most Indian companies are in a transition today. They are painfully coping with the problem of incompetent family members at the top of many businesses. According to Rahul Bajaj it is easy to

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get rid of as outside manager, but how do you get rid of a family member? You must either do what is right for the business or the family. Either way, you will end up with an unhappy family or a weak company. Because of global competitive pressures unleashed by the economic reforms, it is beginning to dawn on Indian Businessmen that superior companies are built by superior people; that the success of their company depends on their attitude towards men and women of high ability and advancement training. Today because of competitive pressures and the rapid rate of innovation and change, there is a scramble to find talented people and to retain them when they are found. Almost every organization has biggest challenge was to fed men and women of ability to manage crucial positions in the company. This is the most profound change we are witnessing in the business world after the reforms. The inability of Indian business to create largescale non-family organizations may not, thus necessarily constitutes a constraint on the rate of aggregate Indian economic growth, at least in the early phases of industrialization. What small companies give up in terms of financial clout, technological resources and staying power, they gain in flexibility, lack of bureaucracy and speed of decision-making. Throughout the 1980s the economics of Italy and other famislistic Latin Catholic Societies in the E U grew faster than Germanys Max Weber, who argued that Chinese familision would impede economic modernization, was simply wrong. Indeed it is likely that small Chinese and Italian family businesses will proposer more than large Japanese or German corporations in sectors serving fast changing highly segmented consumer markets. It our objective in India is to maximize aggregate wealth, and then we have no particular need to move beyond relatively small-scale family business. The Demise of The Joint Family A more unique characteristic of Indian business, at least until recently was that it was managed as

a joint family and derived a competitive advantage from this fact. The famous example is of the Planpuri Jains of Western India, who have established commercial colonies in such diamond centers as Tel Aviv, Antwerp, Mumbai, London and New York and who today account for roughly 50% of all purchases of rough diamonds. But it is not covert with other business like Automobiles and manufacturing company they need. Efficient managers are more likely to be outside the family rather than within. You have no choice but to bring them into run the family business. Otherwise you wont be competitive. Twenty years ago a majority of large business in India was run by joint families. Today the joint business family is practically dead. How did it happen? Why did they split up? What is the fallout of the splits on corporate performance and strategy? Pulin Garg the thoughtful Professor at the Indian Institute of Management, Ahmedabad, used to tell his students Haveli Ki Umar Satt Saal (The life of a family is sixty years). Thomas Mann, the Noble Prize winning German write, expressed the same thought in his great novel. Budden brooks, which is arguably the greatest book about a business family. It describes the saga of three generations. IN THE FIRST GENERATION: The scruffy and astute patriarch works hard and makes money. IN THE SECOND GENERATION : Born into money, the second generation does not want more money. It wants power, it goes after it with single mindedness to become power center. So many industrialists have become Member of Parliament for example, Anil Ambani, Vijay Mallya etc. IN THE THRIED GENRATION: Born into money and power, they dedicate to art and unnecessary things? So, the aesthetic but physically weak grandson play the violin. But the signs of decline are visible and that this is end of the Budden Brooks Family. There appears to be a natural law leading to the breakup of a joint family in the third generation. In the unusual cases where it manages to survive.

39

Splits occur when the third generation grows up. The head of the family then needs all the skills of a diplomat. Govern a family as you would. Cook a small fish very gently says a famous. Chinese proverb when things begin to go soar the family is the place where the most ridiculous and least respectable things in the world happen. People begin to take hints that were not intended and mess the things that were intended. Family life is no longer an adventure, but an anxious discipline in which everybody is constantly gladded for performance. We have seen this spectacle repeatedly in the past ten years among the Ambanis, the Modis, the Birlas, the Walchands, the Ranaq sings, the Chabarias and a dozen other joint family firms who have separated. The split in the Shiram Group ( DCM ) has left their companies in a financial mess. Vivek Bharat Ram, Co-Promoter of DCM Daewoo, did not have the cash to subscribe to expansion of the car companys capital: as a result his family share ins the company has declined from 34 per cent to 10 per cent and later on total car unit is closed . Says a Business Standard Article After the split the company. Suddenly realized that they were unable to negotiate attractive terms from banks and financed institutions as they used to as one family. It was then that the LALA-run management and its weakness came to the fore. Family splits have reduced the advantage of the combined group to borrow money or to negotiate common purchases. However, they have positive fallout in making the business smaller and more manageable. In other cases, the families ignored business synergies and split the assets in a manner that served the family interest. Does it move to professional managers and happened in the United States? Attentively, does it stay within the family as it does in India. Managerial Capatilism Whether Indian business can create managerial capitalism depends partly on the Indian Societys ability to build social capital social capital refers to the way people associate with themselves in a civil society. Where people spontaneously trust each other as strangers (non-kin) and

cooperate with each other. Trust and cooperation are necessary in all market activity. High trust can dramatically lower transaction costs, corruption and bureaucracy. While family capitalism may be successful to Italy, Taiwan, Hong Kong and France, it seems also to be accompanied by education and a strong work ethic. Otherwise, it leads to nepotism and stagnation. Many large and successful Indian companies have also begun to realize that educated hardworking professionals usually outperform lazy, uneducated nephews. However the majority of small and medium enterprises which form the core of the private economy, are still struggling with this issue. In India, there has always existed high degree of trust among kin and caste breath, but we distrust outsiders. Familial capitalism is not necessarily a disadvantage or a weakness in the global economy. The inability to professionalism to bring in and retain outside talent to institutionalize to separate the familys interest from the firms interest is clearly a weakness. In the successful exporting nations, family firms have overcome this weakness. In India they are still grapping with this issue. The Strengths And Weaknesses Of Indian Family Companies Forty years of socialism was not able to destroy Indias legendary entrepreneurship even though it dishorted its behaviour. Indian companies still have a number of strengths. The primary one is that they have been founed largely by the trading castes who have demonstrated great financial acumen, an austere lifestyle, a propensity to take calculated risks, and an ability to accumulate and manager capital. The Ambanis single handely created the equity cult among the India, middle class by building a two million shareholders base in the 80s one of the largest for any company in the world. Because many Indian industries were under severe price controls in the past 40 years, companies were forced to become low-cost producers in order to survive. These constitute significant strengths, and provide a basis for commute significant strengths and provide a basis for competitive advantage as India joins the global economy.

40

However, Indian family companies also have clear and numerous weaknesses. The four most important ones are an inability to separate the familys interest from the interest of the business, a lack of focus and business strategy; a short term approach to business leading to an absence of investment in employees and in product development and insensitivity to the customer, largely because of uncompetitive markets, but resulting in weak marketing skills. Some of the weaknesss were reinforced during the 19501990 period by the closed economy, which discouraged competition. Indian Companies Lack Focus And Strategy The biggest failure of Indian companies is that they want to do everything. Whether it is the Tatas, Birlas, Singhanias, Modis or Thapars the vast majority of big business in India lacks focus. The average business house is engaged in 18 different business. Reliance in refreshing contract, makes only a few products ( all from petrochemicals) and it does it well. Ranbaxy only makes pharmaceuticals, Bajaj Auto only makes two and three wheelers. Whereas overseas companies have been shedding activities that are not related to their core competence, Indian Companies, seem to be going the other way. Among 50 leading Indian companies studied in 1994-95 there was a specific mention of starting up a finance company in the majority of the chairmans statement for 1993-94. The 1994-95 Chairmans speeches proclaimed their interest in the power sector. The 1995-96 reports showed a desire among many companies to enter telecommunications. It take decades to master the fundamentals of industry through painstaking attention to detail in building suppliers, in creating distribution networks, in understanding customers needs. Yet, Indian business treats the serious decision of entering a new unrelated industry as through it was flavour of the year. It is odd that B M Khaitan, the worlds largest produce of green tea, does not reinvest in the tea business, but fritters away his tea earnings buying

unrealated business. A decade ago he spent $ 95 million to buy out the Indian Eveready Battery business of Union Carbide. He proclaims that the Eveready distribution network will help himself packaged tea, that is possible, but difficult to execute for braned, packaged tea is a completely different business. Having said that, there are many responsible young businessmen in India who are questioning their basic strategy and have asked themselves, what is our core competence? And Where can we create competitive advantage? Even as old diversified house like the Thapars wants to divest all businesses. Other than chemicals and paper from its flagship company Ballapur Industries. The RPG Group has divested its tyrecord and razor blades businesses. Vijay Mallyas UB Group has shed its telcom and petrochemicals business and is sold its engineering firm, Best and Croption. The most important decision of the manager is what not to do. The successful companies have found that it is best to do a few things, make sure these are the right things, and do them brilliantly. Successful managers found that success and happiness lie in absorption and mastry over a small area of life. Majority of family splits in business divided their assets by placing family interest first, they split their assets in an illogical way with no synergy between the divided companies. Investment in People or in Innovation A second major failing of Indian Family Business in its short term focus. Hence, it does not invest in its people, nor in R&D. It is lack of attention to human capital is evident right at the start, in how its recruits new employees. If the success of firm is crucially based on the quality of its manger, why do, Indian companies not recruit from the best business schools?. The answer Indian family business are give them opinion are not culturally suited for their businesses. The weaknesses in recruiting in compounded by the lack of attention to training. A young person is hired and thereon into a department to learn what he can. Multinational

41

companies, on the other hand prepare detailed training plans for their young managers and closely and guide them for the first two years. The reward senior managers not only for the results they produce, but also for the on-the-job training that they impart to their subordinates and for the quality of their organization. In east asia the owner will happily sit down with an employee for a meal. It is this attitude which has helped them succeed, create universal education and wipeout the poverty. India in contrast, is like Phillippines, which is the only failure in East Asia because it shares our feudal social structure. It is fair to say that one of the biggest side effects of the competition which the reforms have engendered, in the mad. Scramble for talent in the past ten years. Because of the need to raise productivity and quality in a competitive economy, successful Indian companies like Reliance, HCL and Infosys have created outstanding recruiting and training programmes. Infosys has gone further and created a stock option programme among a broad section of its employees. Asian Paints has been amply rewarded for its far sighted decsion to recruit at IIMS Since the 1970s with leadership of the paints market. Strategies Other than Cost Leadership Indian companies are in a state of transition after the economic reforms. The mindset of the managers has changed and they are internalizing the fact that they have to become more competitive if they have to survive. They are finally taking a serious view of their business strategy. Whether their strategy emerges from an evaluation of their distinctive capabilities or whether it is an up-front decision to focus on a single genuine variable, the conclusion appears to be inescapable that for the near-to-medium term, sustainable. Competitive advantage will like in becoming and maintaining the position of a low-cost producer whatever route they may have adopted incoming to the straegtic position, they will only succeed if they stay loyal to their low-cost-strategy and reap the rewards of the experience curve. There are only three generic strategies available to a firm in order to build competitive advantage.

They are to be a cost leader, a service leader or a technology leaders. This is not because Indian scientists are not capable, but because Indian companies will take time to mobilize the power of science and develop a technology - driven culture. The companies of Korea and Taiwan are still not technology leaders. A few Indian companies may be able to differentiate themselves based on superior technology or superior service, but the majority will succeed only as cost leaders. After the reforms, however some Indian companies are gradually rising to a second stage. They are becoming strategic rather than opportunistic. They are becoming to focus on excelling in one are of advantage cost leadership. They are also seeking customers. They are also seeking customers that are more sophisticated and in some cases segments of the market with higher value added, rather than depending on purely generic products. Adopting a cost leadership strategy does not mean that on can ignore quality. To be a player at all in the global market, Indian Company have to be capable of delivering world class education ( NIIT) denium ( Arvind Mills) raditor caps ( Sundaram Fasteners ), Steel ( TISCO) mountain bicylcles ( TI Cycles) generic drugs ( Ranbaxy), customized software (Infosys), or Polyster intermediates ( Reliance). This is not easy task. It means that they have tobe capable of absorbing the latest technology and incorporating it in their product offering. This is the capability on which the Japanese, Korean and Taiwanese companies built their initial successes. Eventually, at a third stage, Indian companies will have to be driven by innovation. This is the stage that Germany, US and Japan are at it appears at least a generation away in India. For that to happen Indian companies will first need to win also have to get bigger to be more competitive. Because of the nature of their industry information based companies like HCL and Infosys may be able to become technology driven in the next decade. Indian companies will be able to make the sustained investments in R&D, match the marketing resources and global distribution capabilities of world competitors, and devote

42

huge resources to training and upgrading of their employees skills. Smaller companies will have a role to play, for example as ancillaries or suppliers to large companies in Japan. Sony, Panasonic and Toshiba routinely leverage their innovations of their component supplies into the global market. The success of Silicon Valley companies depended on AT & T and Motorola. Outsourcing the non-core activities to smaller companies given a firm tremendous flexibility, conseues capital and keeps it founded on its competence. The essential question is whether Indian companies can realistically adopt another strategy besides cost leadership. A Cost strategy is valunerable to exchange rates of competitors and rising labour costs of domestic employees. Anyone who has shopped in a saree store or eaters in Udipi Restaurant knows the Indian traders ability to deliver superior service. The employee in a typical saree store opens a hundred sarees within minutes in an attempt to sell a single one. Similarly the waiter in a typical Udipi restaurant or Dhaba delivers the customerss thali in two minutes flat. There are other inspirational models of superior service in the competitors Indian Bazaar. Among larger companies HDFC and Sundaram Finance are good examples of superior service. Conclusions Historically, India is at the stage where Korea and Taiwan 25 years ago. There two East Asian Nations concentrated on absorbing technology with a passion. The joint venture is one of the most efficient ways to learn. It is a membrance for technology to pars between a developed and a developing country, and it is the responsibility

of the joint venture to ensure that the membrance is truly porus. Samsung did not learn as much about aircraft from Boeing as its learned Boeings legendary project management skills. Which is later applied to its electronic assemble operations. It matters less for Indian society as a whole what the ownership structure is between the Indian foreing partner. What matters is the knowledge and skills that are being transferred to Indians. No one will be able to take them away. Indian business is overwhelmingly owned and managed by families. Thus, however not necessarily a disadvantage as long as the family firms is able to overcome their historic weaknesses, they have to learn to separate the familys interest from the companys interest. Create the environment to recruit and retain outside talent, bring focus to their operations, use a joint venture to upgrade their skills and knowledge and follow a consistent strategy. References
Business Standard 3 Aug 1996 Indians Fifty Business Families, Business nd Today 22 August 1997 Entrepreneurship and Industry in India, Oxford press new Delhi The Economist 9 March 1996
th rd

How Race, Religion and Identity determines success in New Global Economics, Random House New York The Economic Times - 24 Oct 2005 Business Today 15, September 2005
th

Business Week, 5th Jan 2006 Indian Management - April 2004

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Awareness Level Leading a Customer from Awareness Level Purchase Level to Purchase Level
Bedabal Ray

A companys job does not end just by creating

brand awareness. A company should be willing to lead a customer from awareness level to purchase level. In doing so, company must undertake certain activities. Company should communicate to the customers about the brand, its values, culture et al. and the customer weighs the brand with other brands and may intend to consider the brand for purchase. When a customer considers a brand for purchase, he looks for the following elements in the brand: Brand awareness Appeal Emotional connection Price/Values Culture Brand Image

A customer should awareness to leadtoa company be willing from level

purchase level. In doing so, company must undertake certain activities. Company should communicate to the customers about the brand, its values, culture etc. and the customer weighs the brand with other brands and may intend to consider the brand for purchase. The presetn paper looks into leading a customer from awareness level to purchase level.

Brand awareness: Brand awareness gives the company following advantages: It gives long term relationship with the customers It is an intangible asset It gives customer satisfaction It can lead to a sale

How to create strong brand awareness Providing a strong brand communication Focusing on Values/Culture of the brand Develop emotional connection with the target customers Develop a strong brand appeal and brand personality

Prof Bedabal Ray PGDM(IIM-B) is Prof.Marketing, Chairman-Marketing Area, Asia Pacific Institute of Management, Jasola; Sarita Vihar,New Delhi

Advertising Appeals: There are different types of advertising appeals. If appeals are used properly the customer may like

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to be hooked with the brand. Most commonly used appeals are Fear, Humour, Sex, Emotions etc. You have to be very careful at the time of using appeal in the brand. Fear is a negative stimulus for any brand. Life Insurance Corporation used Fear appeal for a long time to sell their Insurance Product. Tyre companies were also emphasizing on Fear appeal to sell Tyres. We should avoid Fear appeal as we know is a negative impulse and customers may not take it with the right spirit. Humour In todays advertising, clutter has become a major problem. If the clutter is very strong, it is very difficult to put attention to a particular communication message. In this high clutter situation, companies may use humor appeal to cut through the clutter. Most of the advertisements should be intrusive in nature, otherwise it may not get any mind-space. Humor has a strong intruding effect in consumers mind and may be effective in a strong clutter situation. Sex Sex is the strongest among all appeals. According to Freud, most of the people are basically Iddriven and hence sex can play a bigger role in selling a product. In western countries, sex has become part of advertising communication. In some society, sex is almost a commodity, sex is an integral part of peoples lives. And companies focus on sex to get more attention. Sexuality has been employed in advertising in five ways, including: Subliminal techniques Nudity or Partial Nudity Sexual Suggestiveness Overt Sexuality

subliminal cues should not be strong enough to be noticed or create any effects. The ad for Bijan perfume features Bo Derek. The location of her arm, the expression on her face, and the line Bo Derek is wearing Bijan Eau De Parfum and nothing else provide the subliminal sexual message that she is naked. A large no. of companies use nudity and partial nudity to sell their products. . Instead of nudity, some ads using sex appeals try sexual suggestiveness. A recent trend in sexual suggestiveness is to use gay and lesbian themes. .in one ad, a young man admits to being gay while explaining that his neighbors didnt like him. Other ads, although not overtly gay, could be interpreted as such Another recent trend in sexual appeals is the use of sensuality. These ads often target women who might respond to more of a sensual suggestion than an overt sexual approach. Instead of strong sexual images, they show an alluring glance across a crowded room. Many view sensuality as a more sophisticated sexual appeal approach because it relies on imagination. It portrays images of romance and love rather than raw sexuality. From Integrated Advertising, Promotion, and Marketing Communication by Clow & Baack Emotional Connections In case of differentiated products, companies use FAB or FABS concept. Products are differentiated based on features, advantages, and benefits and finally companies sell benefits or consumers will buy benefits. In 1960, Rosser Reeves gave a unique solution to companies to sell products. He talked about USP, Unique Selling Proposition. Products should have a unique selling proposition which company will use to sell the products. Promise toothpaste used Clove Oil as their USP in Promise toothpaste. Colgate used the slogan stops bad breadth as their USP But USP concept . became obsolete as lot of me-too products came in the marketplace offering similar USPs. In case of FABS or USP concept, competitors can measure the level of features and advantages

Sensuality Subliminal approaches place sexual cues or icons in advertisements to effect a viewers subconscious mind. In an odd paradox, truly

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the company is offering and then emulate the features and advantages and offer in their products. Therefore driving the company in a parity situation and the company with FAB or USP will be absolutely stranded in the Marketplace. Today in many product categories, parity situation exists. Companies can not differentiate based on features or advantages or price. In parity situations companies offer similar products with similar features at similar prices. In these product categories differentiation is absolutely impossible. Example: Coke & Pepsi, Airtel & Hutch, Ariel & Surf Excel and so on. So, companies create an aura around the brand and tries to develop emotional connections with the customers. If companies can create a strong emotional bond around the brand and if customers are hooked to it, it will be very difficult for the competitors to measure the emotional bond level and emulate the same. In todays world when product exists in parity situation, companies should learn how to create an aura around the brand and connect with the customers emotionally. Value In considering the value of a product, we may often consider the price/value of a product. We may define value under the following Price/Value paradigm: Perceived Customer Value Value in relation to competition Store location Cost Brand Positioning

Culture of a brand emanates from the culture of the brand promoter. Citibank culture can be defined as the most posh, urbane, and sophisticated. Nirmas culture can be rustic and boorish. Marutis culture is mediocore and so on. Culture talks about urbanization, education and the breed. If a company is urbanized, educated and having the right breed, we will say that the company is having the right culture. Image Image is what people feel about you. Some companies are respected by people because of the companys high Image and some companies are not respected by people because of low Image. People not only buy a good brand, but they buy from a good company. So it is imperative to have the right image to help customers buy products. (refer Table One) Communication In order to drive a customer from awareness level to a purchase level, we should communicate to the customers the following significantly Brand awareness Appeal Emotional connection Price/Value Culture Brand Image

We will adopt the following Integrated Marketing Communication approach: Advertising Sales promotion Public Relations Direct Marketing Personal Selling

Very often, customers define value in terms of price or the materials worth that they are getting from the product. Store location & Brand positioning also determine value of a product. Culture

This IMC approach will help the company create a strong Brand awareness which can be converted to a sale in the following manner:

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Brand Awareness Conversion Evoked Set Conversion Sale Product should have the right appeal which will entice customers. Appeal should also developed emotional connections with the customers People want to buy the right product at the right price. Products price/value should be communicated to the customers to help them buy the right product and get the moneys worth. Culture has to be developed and communicated to the customers so that understand that they are buying the product from the right place. Brand Image can be developed through proper positioning and this has to be communicated to the customers. At the end, it can be said in a nutshell that customers can be driven to awareness situation to purchase situation.

References
The Brand Management Checklist by Brad VanAuken; Published by Kogan Page Limited; 2004 Introductions to Marketing Communication by John Burnett & Sandra Moriarty, Prentice Hall, 1998 Integrated Advertising, Promotion, and Marketing Communication by Clow & Baack, Prentice Hall, 2nd ed, 2004 Consumer Behavior by Schiffman & Kanuk, Prentice hall, 8th ed, 2004 Strategic Brand Management by Jaen Noel Kapferer, Kogan Page, 2002 The ICFAI Journal of Brand Management, Vol. VIII, March 2006 Indian Journal of Marketing, January 2006

Table One
Components of Corporate Image Tangible Elem ents Intangible Elements Tangible goods/service Company Policies Store Values/Culture of the company Production unit Corporate Com munication Corporate name, logo Employees

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Mutual par arty Equity Mutual funds: Is the party over?

Richa Thakur

The Bull is still dancing

The current returns of the equity markets makes

Once aisMutual Fundreplied Good! asked investor was how it going? he They
provide the fund part and I provide the mutual part. Can you have the same reply if you are still in the process of choosing a correct Equity Fund for yourself? If one was to select a good equity scheme from the plethora of schemes existing in the Indian mutual fund industry, the thing most of us will look at is the past performance, and will generally settle down to invest in the top performing scheme. The practice is just like smoking, where the statutory warning informing users of impending cancer possibilities, just doesnt matter, and smokers will continue the habit anyway, likewise, lines like past performance is no guarantee of future performance appearing in the offer document of the MFs scheme is forgotten for all practical purposes. The smarter ones among us may look at risk-adjusted returns too, and some may even go to extreme lengths of checking out the schemes Net Asset Values before investing, but the rest of us, confused or tired of the exercise, are sure to go for the next big NFO.

one wonder whether we need to really actively research stocks and find sustainable investment ideas. The point in making is that Sensex in the last one-year has grown by 90%. Whereas, the category average of all equity-oriented mutual fund schemes for one-year stands at just a shade better at 84.39%. There are exactly 100 schemes in the actively managed open ended equity-diversified space in the Indian mutual funds industry which have completed one year of operation and only 51 have managed to outperform the index in the last one year. Therefore, there is only a 50% chance that an investor who got in any of the actively-managed funds a year back has got returns in excess of what the index has delivered. This raises the quintessential question as to whether investor should settle for passively managed funds instead, which replicate the index, with a minimum of tracking error, rather than spend more by way of expenses in search of excess returns from actively managed funds. Index Funds apparently seems to be the safest bet to capitalize on the equity markets and take a call on frontline stocks with lower transaction costs, but in Indian context, the investors have been shying from the index funds. The popularity of the actively managed funds have been quite strong due to the fact that India being a growing economy, offers several good opportunities across various stocks which do not form part of the indices, and investors make extraordinary gains from these stocks. Given the rally in Sensex stocks, is there a need for the investors to relook upon index funds as an investment avenue or actively managed funds would continue to remain the preferred choice? The answer is both yes and no. Yes because investing through index funds the investor is assured that his returns will not stray far from the returns of the index that the fund mimics. Therefore the returns-expectations of the individual are tempered to an extent. In other words, investors can replicate the returns of the

Richa Thakur is Asstt. Professor, IIIM, Mansarovar, Jaipur

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target index what is usually construed to be a good indicator of overall markets by holding all the securities in the index in proportion to their weightage in the index and trading as little as possible to minimise transaction costs. And that is why indexing is popular with investors who prefer steady returns through a conservative, longterm, low-risk investment strategy. No because till now majority of actively managed funds in India have been outperforming the index funds over a longer horizon. Whats more the margin by which these funds have beaten the index funds is large. In the last five year period, the diversified actively managed funds have given average returns of 43.16% compared with 28.17% by index funds. The last criterion in particular is very significant in our view; most equity funds tend to do well during a rally, but only the very best can cope with a market downturn. (refer Table One) 1. Franklin India Bluechip FundProfile Franklin India Bluechip Fund (FIBF) is one of the better-managed large cap funds in the country. The fund has an impressive track record going back to 1994. Another plus is continuity in fund management; Mr. K. N. Siva Subramanian, a leading fund manager, has been managing the fund since inception. Investment Strategy FIBF maintains a stock portfolio of about 30 stocks. It does not shy from making concentrated allocations in stocks as well as sectors. The top 10 stocks in its portfolio usually account for more than 50% of net assets. Likewise, its sector allocations are also concentrated across a handful of sectors. FIBF is probably the only large cap fund that has maintained its true blue large cap nature. It has adhered to its mandate even during the mid cap rally and remained invested in large caps, while its peers deviated from their professed mandates and invested a portion of their assets in mid caps to capitalise on the growth opportunities in that segment.

Prospects FIBFs impressive track record should make it an ideal investment for investors looking to invest in a large cap fund. The fund is process-driven and has a history of identifying trends earlier on. Given that large caps can do better than their mid cap peers at least on a risk adjusted basis, a large cap fund like FIBF should prove to be a rewarding investment proposition. 2. HDFC Equity Fund Profile HDFC Equity Fund (HEF) is a pre-dominantly large cap equity fund. It has a decade-long track record of impressive returns across market cycles. It is managed by Prashant Jain, one of the more respected figures in the fund management industry, for more than 10 years. Investment Strategy HEF pursues an aggressive investment style. It usually invests in about 25 stocks. The fund manager backs these stocks by making higher allocations to them. For the same reason, its sector allocations are also concentrated. This style has worked well for the fund over the years.Another trait that has worked well for HEF is its knack for entering and exiting sectors at the right time. Of course, it has made mistakes like its heavy PSU exposure in 2003; but it has been more right than wrong. A case in point of a very timely exit was software in December 1999, at a time when others were busy getting into the sector. HEF invests predominantly in large caps, but can invest in mid caps; a flexibility it used liberally during the mid cap rally. Prospects For investors with a high risk appetite, HEF makes an ideal investment option. The funds ability to keep turbulence at bay despite managing a concentrated portfolio is a major positive. The flexibility to invest in mid caps implies that investors can get a flavour of the mid cap potential whenever it arises.

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3. HDFC Top 200 Fund Profile HDFC Top 200 Fund (HTF) is an index-plus fund, among the earliest funds of its kind. Launched in 1996, it is on the verge of completing an impressive decade in the industry. It is managed by Prashant Jain. Investment Strategy HTF pursues an index-plus investment strategy, aligned to the BSE 200. Upto 60% of its net assets are invested in stocks from the BSE 200. It can invest the balance 40% in stocks that are not a part of the index. The fund maintains a portfolio of 40-50 stocks. It maintains a relatively concentrated sectoral portfolio. Like its sibling HDFC Equity Fund, HTF made several critical investment calls that worked well for it like exiting technology/media/telecom in 1999. Prospects HTFs index-plus strategy has infused a degree of consistency in performance. This makes it an ideal investment option for investors with a moderate-high risk appetite. An impressive track record and a competent fund management team are other reasons to invest in the fund. 4. Franklin India Prima Fund Profile Franklin India Prima Fund was responsible for introducing the term mid caps to the mutual fund investor. It was launched a good 10 years before other fund houses caught on to the mid cap opportunity. An impressive performance since inception and the fund management expertise of K N Siva Subramanian are the biggest positives in its favour. Investment Strategy FIPF invests predominantly in mid cap stocks; it invests a small portion in large caps. The funds equity portfolio is well-diversified (over 50 stocks) with the top 10 stocks accounting for less than 40% of net assets.

A diversified equity fund should have no more than 40% of net assets in the top 10 stocks and FIPF fares well on this parameter. This becomes even more critical in the case of a mid cap fund given the higher risk involved. Sectorally, FIPF maintains a concentrated portfolio Prospects FIPF is best suited for investors with a flair for high risk high return investment avenues. The funds decade-long expertise in managing investments in mid cap stocks is a big positive. Identifying trends earlier on and keeping volatility at bay through a well-diversified stock portfolio are other reasons to invest in the fund. 5. Principal Growth Fund Profile Principal Growth Fund (PGF) is a predominantly large cap diversified equity fund. Launched in October 2000, it has only completed 5 years in the industry. For most of its existence it was a relatively modest performer; a change in the fund management team changed that and the fund has now emerged as a better-performing predominantly large cap fund. Investment Strategy PGF invests a larger portion of its net assets in large cap stocks. It has the flexibility to invest a portion of its assets in mid caps, something it has put to good use during the mid cap rally. The funds stock picks are well-diversified with the top 10 stocks accounting for less than 40% of net assets. It maintains a sectorally concentrated portfolio when it identifies an opportunity. Likewise, it goes into cash quite liberally either to cut losses or to invest later at an opportune time. Prospects Investors with a moderate-high risk appetite should consider adding PGF to their portfolios. Like its equity fund siblings, PGF has done well to generate wealth for investors by taking on lower risk, a fact evident from its Standard Deviation and Sharpe Ratio numbers.

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A process-driven investment style will ensure that the fund is a consistent performer going forward. 6. Sundaram Growth Fund Profile Launched in 1997, Sundaram Growth Fund (SGF) is one of the most conservatively managed equity funds. Its process-driven approach has endeared it to investors who have come to expect a degree of stability and consistency in SGFs performance. Investment Strategy SGF pursues a pre-dominantly large cap investment strategy. It adheres to well-defined processes. For instance, its investments in a single stock cannot exceed 5% of net assets. If the stock allocation exceeds that number then it must necessarily dilute its stake in the stock. On the same lines, its sectoral allocations also have limits aligned to those of the BSE 200. These processes ensure that the fund is welldiversified across stocks and sectors at all times. This is something that helped the fund negotiate the downturn in tech/media/telecom sectors in early 2000. Prospects ,SGFs biggest positive is a well-diversified investment strategy, which has worked well for the fund across market cycles. This is evident from its consistent performance on the returns and risk parameters (Standard Deviation and Sharpe Ratio). For investors with a moderate risk appetite, SGF is an ideal investment option. Sundaram Asset Management Company is on the verge of formalising an equity tie-up with BNP Paribas. The latter has bought a 49.9% stake in Sundaram AMC. While details of the tie-up and its implications to investors (in Sundaram schemes) will unfold at a later stage, our interaction with Sundaram AMC indicates that the investment style and processes of AMC and the mandates of the existing funds will remain undisturbed.

The funds profiled above represent, in our view, the best equity funds available to investors. However investors would do well to realise that investments in mutual funds are prone to the variations of markets and that even the best of schemes could suffer during a downturn in markets. However the chosen schemes are certainly better equipped to protect investors interests during adverse conditions vis--vis their peers. Also investors investment objectives and risk profiles will play a vital role in determining the allocation to be made to each fund. This is where the services of an expert and qualified investment advisor will come handy. However, for the retail investors certainly this is a time of caution as they could be caught on the wrong foot. Markets at this juncture no longer look cheap and valuations seem to be stretched when compared with the other emerging markets. The BSE Sensex is currently quoting at a P/E of around 21 times, the highest among emerging markets. Dow Jones and FTSE 100 trade at multiples of about 18.5 and 15 respectively while emerging markets such as Brazil, China and South Korea are trading at multiples of around 12, 18.5 and 11 respectively on a trailing twelvemonth P/E basis. Though the capital markets may continue to do well in the medium to long term as all the growth triggers which can sustain the rally are in place, but the pace of the growth would certainly slacken down. The investors should rationalize their judgement a little and not expect extraordinary returns of last years. The Big Boom The equity Mutual Funds are cashing on the boom in the market and collecting huge amounts from the optimist investors .In the past five months around 17000 crore rs. have been mobilzed by the equity mutual funds, this happens to be a record collection up till now. Investors should be advised to enter in mutual funds, irrespective of the market conditions. Investment in a staggered manner through the SIP route is the safest bet as far as playing the markets are concerned, as it facilitates the

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advantages of rupee cost averaging and is effective in handling the upswings and downswings of the markets. The two most difficult decisions to be taken in equity investment are when to invest and where to invest. Investing in a mutual fund solves the issue of where to invest and SIP helps to overcome the problem of when to invest. SIP is a disciplined investment approach irrespective of the state of the market. It thus makes the market timing totally irrelevant. And it makes all the sense now when markets are booming like never before. As a fixed amount is invested regularly in a SIP you end up buying more number of units , when the markets are down and NAV is low and less number of units when the markets are up and the NAV is high. Investors generally stay away from buying when the markets are down and tend to invest when the markets are rising. SIP works as a good discipline as it forces us to buy even when the markets are low, which actually is the best time to buy. The current levels of the market should not bother the long-term retail investor, who is looking to invest through the mutual fund route. With the Indian economy looking good in long term and GDP growth projected at 8% plus, one can expect handsome returns. Looking at the current levels of the market investors are better off adopting disciplined approach to investing with long term perspective to combat volatility and still staying invested in the equities. If you are a believer in Indias growth story, buy into the market with the long term perspective after carefully assessing your investment objectives and risk-return profile. Though the markets seems to be over-bought there always are opportunities existing in this market, although finding such investment calls may be difficult than ever. Therefore for a retail investor, the focus should be on selecting the right fund, with good performance track record, both in bear and bull phases.Though the Indian mutual funds industry may be growing at a high pace, it is still not big enough to worry about fund sizes at all. There are also new investments areas, which are waiting to be explored like, commodities, real estate, gold etc. The recent

budget also opened doors for overseas investments and we hope things can only get better from here. Therefore a larger fund size should actually be considered a boon for Indian mutual fund schemes, and the fears of the performance being adversely affected is unsubstantiated, even if the fund is concentrating on a particular segment of the market. The Taste Of Success The mutual fund industry has well and truly arrived in the Indian investment space. The booming capital markets have certainly helped mutual funds in creating history but it alone is not a factor behind the industrys success. The reputation has been build steadily over the years after the fall of the Unit Trust of India. Fund Managers in India have been able to consistently outperform the markets, the transparency levels have increased manifold over the years, quality of service has improved drastically and last but not the least, product innovation has played a very important role in the success of the Indian mutual fund industry. The Indian mutual fund industry can now boast of world-class services with all the risk- control exercises in place and thorough professional and ethical practices guiding the industry. Reliance Equity Fund has achieved something, which no other Indian mutual fund has been able to do so far it collected a whopping 5,759 crore through its Reliance Equity Fund NFO.. Mobilizing such a large amount is no mean job by any yardstick. Unit Trust of Indias Mastergain Fund launched in 1992 raised Rs 4,780 crore. This calendar year, seventeen new schemes (close date) have been launched so far in equity category and many more are lined up, and they have collectively mobilized over Rs 17000 crores. Schemes like SBI Bluechip Fund mobilized around Rs 2850 crore while UTI Leadership Equity fund raised around Rs 2000 crore. Previous years collection through new fund offers stands at Rs 25,334 crores and this years collection is all set to surpass it. So, what really has changed now that we see such a frenzy surrounding new launches? Is it the media hype or the investor has realized that

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smaller players have no role in this market, and should settle for the next best alternative availableThe Mutual Funds! The performance of the capital markets entices the common investor who reads about the major indices breaching new record highs almost everyday, and he does not want to be left out of the goldrush anymore. Join The Band Wagon The advice that the investor gets from the experts is not to invest directly in stock markets, and rather get in through the mutual funds route. The advice may be in good faith, but it still fails to explain the net inflows of Rs 8530 crore in equity category through NFOs and outflows of Rs 1483 in February from existing funds, which suggest that mutual fund investors appear to prefer NFOs rather than existing funds. Some of the new offers had some uniqueness in terms of objectives, which added value to the portfolio, but the rest have been no different from the existing schemes. One of the reasons of high mobilization in NFOs could be higher commission involved with respect to selling units of NFOs with handsome target-based incentives. The Indian investor should be prudent enough to see the real picture if an agent is trying to force a NFO down their throat, even if the passback to them- which sadly exist in the Indian financial market. Surely, a new scheme always gets more visibility than an existing scheme thus attracting the investor and owning units of NFOs has probably become the in thing now. The performance of the recently launched NFO has also been quite satisfactory and in line with the existing schemes and the markets. The euphoria regarding NFO is at the cost of existing schemes, or because of their valueaddition or any other reason; they certainly are here to stay. Urban India today is earning at a younger age, and even after spending a chunk on lifestyle and other needs, they are still left with enough disposable income to content with. Therefore we feel the euphoria is for real, irrespective of the market conditions. Nobody seems to be complaining though and new money is always welcome whether it is

through the NFO route or otherwise, however it remains to be seen how Reliance Equity fund goes about deploying these funds in these market conditions. Strategy for investing in equity MFs While investing every investor has to keep in mind his/her individual needs , risk taking capacity, age, requirement etc.One has to choose a scheme which suits best to his risk appetite and investment plan. All the Mutual Funds have their risk factor as a part of their investment plan , but these risks may vary with the kind of scheme one chooses and term of the investment. In practice equity mutual funds have their risk levels which are directly proportionate to the level of return . The hoopla created by the media should be no criteria to make an investment So the investor has to work out a balance between risk-return trade off ,higher the risk higher the return or otherwise. The crux here is to pick a scheme which suits your need and risk appetite and should be in sync with the expectation of that particular individual l. The investor should not invest in NFOs which are the flavor of the day unless it really adds value to the existing investments .If the investor is averse to taking risk he/she should go in for Systematic Investment Plan(SIP) where. risk is low and returns are fairly good, it can effectively sustain the swing of the market and giving good returns at the end. To sum up the good times are here to stay for some time at least for 2-3 years so if you have not yet zeroed down to the one you are going to invest do it now because the party is still on. Enjoy! References
www.mutualfundsindia.com ICFAI Reader, June 2005 The indian Journal of commerce, Oct.-Dec. 2004 Financial Services New Innovation by G.S. Balza, RC Dangwal www.businesstandard.com

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Table One
Diversified Equity Funds NAV (Rs) Assets 1-year 3-year 5-year Since Std. Sharpe (Rs m) (%) (%) (%) Incep. (%) Dev. (%) Ratio (%) 80.5 65.6 64.8 54.9 53.1 54.8 35.8 54.5 41.4 39.6 32.5 30.6 30.2 17.5 26.4 24.4 34.4 29.4 28.9 24.5 6.35 6.39 6.17 6.54 6.33 6.21 0.44 0.40 0.36 0.27 0.36 0.31

FRANKLIN INDIA PRIMA FUND 168.59 21,074 57.2 HDFC EQUITY FUND HDFC TOP 200 FUND FRANKLIN INDIA BLUECHIP PRINCIPAL GROWTH FUND SUNDARAM GROWTH FUND S&P CNX Nifty 103.72 18,606 60.8 77.37 36.79 46.55 7,840 3,617 1,051 53.4 36.7 40.1 33.4 87.36 18,865 39.0

(NAV data sourced from Credence Analytics; NAV data as on December 26, 2005. Growth over 1year is compounded annualised) (The Sharpe Ratio is a measure of the returns offered by the fund vis--vis those offered by a riskfree instrument) (Standard deviation highlights the element of risk associated with the fund.)

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Computing: Clustering Grid Computing: Enabler of Clustering of Distributed Resources Sunil Kr. Pandey

During recent years, we have witnessed a major

he growing popularity of the Internet along with the availability of powerful computers and high-speed networks as low-cost commodity components are helping to change the way we do computing. These new technologies are enabling the clustering of a wide variety of geographically distributed resources, such as supercomputers, storage systems, data sources, and special devices, that can then be used as a unified resource and thus form what is popularly known as a Computational Grids. The Grid is analogous to power (electricity) grid and aims to couple distributed resources and offer consistent and inexpensive access to resources irrespective of their physical location. Some of the research projects that have popularized the concept of Grid, include Globus, Legion, Nimrod/G, DISCWorld and AppLeS. The worldwide business demand requiring intense problemsolving capabilities for incredibly complex problems has driven in all global industry segments the need for dynamic collaboration of many ubiquitous computing resources to be able to work together. These difficult computational problem-solving needs have now fostered many complexities in virtually all computing technologies, while driving up costs and operational aspects of the technology environments. However, this advanced computing collaboration capability is indeed required in almost all areas of industrial and business problem solving, ranging from scientific studies to commercial solutions to academic endeavors. It is a difficult challenge across all the technical communities to achieve this level of resource collaboration needed for solving these complex and dynamic problems, within the bounds of the necessary quality requirements of the end user. The Grid Computing discipline involves the actual networking services and connections of a potentially unlimited number of ubiquitous computing devices within a grid. This new innovative approach to computing can be most simply thought of as a massively large power utility grid, such as what provides power to our homes and businesses each and every day. This delivery of utilitybased power has become second nature to many of us, worldwide. We know that by simply walking into a room and turning on the lights, the power will be directed to the proper devices of our choice for that moment in time. In this same utility fashion, Grid Computing openly seeks and is capable of adding an infinite number of computing devices into any grid environment, adding to the computing capability and problem resolution tasks within the operational grid environment. The incredible problem resolution capabilities of Grid Computing remain yet unknown, as we continue to forge ahead and enter this new era of massively powerful grid-based problem-solving solutions. This paper includes the presentation and discussions on different aspects of the Grid Computing with focused discussions on the common issues addressed by many worldwide communities utilizing and continuing to develop Grid Computing.

Sunil Kr. Pandey is Asst. Professor, Dept. of CS & IT, Institute of Technology & Science, G.T. Road, Mohan Nagar, Ghaziabad 201007

paradigm shift in distributed computing principles, with a focus towards service orientation, open standards integration, collaboration, and virtualization. One particular area of interest centers on the evolution of grid computing principles into the mainstream of distributed computing and Web services. The Grid Computing discipline involves the actual networking services and connections of a potentially unlimited number of ubiquitous computing devices within a grid. This new innovative approach to computing can be most simply thought of as a massively large power utility grid, such as what provides power to our homes and businesses each and every day. This delivery of utility-based power has become second nature to many of us, worldwide. We know that by simply walking into a room and turning on the lights, the power will be directed to the proper devices of our choice for that moment in time. In this same utility fashion, Grid Computing openly seeks and is capable of adding an infinite number of computing devices into any grid environment, adding to the computing capability and problem resolution tasks within the operational grid environment. The incredible problem resolution capabilities of Grid Computing remain yet unknown, as we continue to forge ahead and enter this new era of massively powerful grid-based problem-solving solutions. Today, Grid Computing offers many solutions that already address and resolve the above problems. Grid Computing solutions are constructed using a variety of technologies and open standards. Grid Computing , in turn, provides highly scalable, highly secure, and extremely high-performance mechanisms for discovering and negotiating access to remote computing resources in a seamless manner. This makes it possible for the sharing of computing resources, on an unprecedented scale, among an infinite number of geographically distributed groups. This serves as a significant transformation agent for individual and corporate implementations surrounding computing practices, toward a general-purpose utility approach very similar in concept to providing electricity or water.

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The Grid problem Grid computing has evolved into an important discipline within the computer industry by differentiating itself from distributed computing through an increased focus on resource sharing, co-ordination, manageability, and high performance. The focus on resource sharing is called the grid problem, which can be defined as the set of problems associated with resource sharing among a set of individuals or groups. This sharing of resources, ranging from simple file transfers to complex and collaborative problem solving, is accomplished under controlled and well-defined conditions and policies. In this context, the critical problems are resource discovery, authentication, authorization, and access mechanisms. Resource sharing is further complicated when a grid is introduced as a solution for utility computing, where commercial applications and resources become available as shareable and on-demand resources. This concept of commercial on-demand utility grid services adds new, more difficult challenges to the already complicated grid problem list, including service level features, accounting, usage metering, flexible pricing, federated security, scalability, and open-ended integration. The preceding definition is more centered on the computational aspects of Grid Computing while later iterations broaden this definition with more focus on coordinated resource sharing and problem solving in multi-institutional virtual organizations (Foster & Kesselman, 1998). In addition to these qualifications of coordinated resource sharing and the formation of dynamic virtual organizations, open standards become a key underpinning. It is important that there are open standards throughout the grid implementation, which also accommodate a variety of other open standards-based protocols and frameworks, in order to provide interoperable and extensible infrastructure environments. Grid Computing environments must be constructed upon the following foundations: Coordinated resources. We should avoid building grid systems with a centralized

control; instead, we must provide the necessary infrastructure for coordination among the resources, based on respective policies and service-level agreements. Open standard protocols and frameworks. The use of open standards provides interoperability and integration facilities. These standards must be applied for resource discovery, resource access, and resource coordination.

Another basic requirement of a Grid Computing system is the ability to provide the quality of service (QoS) requirements necessary for the enduser community. These QoS validations must be a basic feature in any Grid system, and must be done in congruence with the available resource matrices. These QoS features can be (for example) response time measures, aggregated performance, security fulfillment, resource scalability, availability, autonomic features such as event correlation and configuration management, and partial fail over mechanisms. There have been a number of activities addressing the above definitions of Grid Computing and the requirements for a grid system. The most notable effort is in the standardization of the interfaces and protocols for the Grid Computing infrastructure implementations. Let us now explore some early and current Grid Computing systems and their differences in terms of benefits. Grid Architecture model A new architecture model and technology has been developed for the establishment and management of cross-organizational resource sharing . This new architecture, called grid architecture, identifies the basic components of a grid system. The grid architecture defines the purpose and functions of its components, while indicating how these components interact with one another. The main focus of the architecture is on interoperability among resource providers and users in order to establish the sharing relationships. This interoperability, in turn, necessitates common protocols at each layer of the architectural model, which leads to the definition of a grid protocol architecture (refer Figure One).

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This protocol architecture defines common mechanisms, interfaces, schema, and protocols at each layer, by which users and resources can negotiate, establish, manage, and share resources. Figure 1 shows the component layers of the grid architecture and the capabilities of each layer. Each layer shares the behavior of the underlying component layers. The following describes the core features of each of these component layers, starting from the bottom of the stack and moving upward. Fabric layerThe fabric layer defines the interface to local resources, which may be shared. This includes computational resources, data storage, networks, catalogs, software modules, and other system resources. Connectivity layerThe connectivity layer defines the basic communication and authentication protocols required for gridspecific networking-service transactions. Resource layerThis layer uses the communication and security protocols (defined by the connectivity layer) to control secure negotiation, initiation, monitoring, accounting, and payment for the sharing of functions of individual resources. The resource layer calls the fabric layer functions to access and control local resources. This layer only handles individual resources, ignoring global states and atomic actions across the resource collection pool, which are the responsibility of the collective layer. Collective layerWhile the resource layer manages an individual resource, the collective layer is responsible for all global resource management and interaction with collections of resources. This protocol layer implements a wide variety of sharing behaviors using a small number of resource-layer and connectivity-layer protocols. Application layerThe application layer enables the use of resources in a grid environment through various

collaboration and resource access protocols. SOA Model A service-oriented architecture (SOA) is a specific type of distributed system framework, which maintains agents that act as software services, performing well-defined operations. We define a SOA as a loosely coupled architecture with a set of abstractions relating to components granular enough for consumption by clients and accessible over the network with well-defined policies as dictated by the components. Thus, a service acts (in some manner) as a userfacing software component of an application or resource. This paradigm of functionality enables the users of that application (or resource pool) to be concerned only with the operational description of the service. In addition, SOA stresses that all services have a network-addressable interface and communicate via standard protocols and data formats called messages.The Web Services Architecture (WSA) helps in enabling and defining SOA whereas services interact by exchanging XML (Extensible Markup Language) messages. The main characteristics of the WSA are: It is based on XML technologies such as XML Information Model, XML Base, and XML Schema. It is independent of the underlying transport protocols (e.g., HTTP [HyperText Transfer Protocol] or SMTP [Simple Mail Transfer Protocol]) and the transport selected as a runtime binding mechanism. It uses XML message exchanges, while providing the extensibility model for this message exchange pattern to adapt to various message interchange requirements (e.g., security, reliability, correlation and privacy.) These interoperable messages could be created using Simple Object Access Protocol (SOAP) and SOAP extensions. SOAP extension mechanisms and XML information models are used to construct Web services extensions.

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Service capabilities are described using description languages such as Web Services Description Language (WSDL). It uses the service discovery, workflow choreography, and transaction/state management that are built on the XML capabilities and lower-layer specifications in the architecture layer.

The emergence of the SOA concept helps grid resources to advertise their capabilities through standard interfaces defined as part of their service extensions. This enables grid users to integrate the resources through open-standards interfaces. In addition, the operational functions of each layer in the grid architecture can be abstracted to enable easier integration across all the layers. Grid services standardization A grid service is (in practice) a Web service that conforms to a particular set of coding practices, namely, a set of XML coding conventions in the form of standards. For example, grid services can be defined in terms of standard XML-based WSDL, with perhaps some minor XML language extensions. These grid services can now take advantage of standard Web services binding technologies (for messaging , reliability, transactions, and security), such as SOAP WS, Reliable Messaging (Web Services Reliable Messaging), WS-Transaction (Web Services Transaction) and WS-Security (Web Services Security). Grid services indeed look like Web services, especially from a programmatic view. As stated earlier, all of the resources (physical or logical) in OGSA are modeled as services. These services are built on top of the SOA, and more specifically the WSA. This enables a grid service to use the capabilities of the message model, service descriptions, and discovery. Web services standards have evolved to enable these services to extend capabilities for secure and reliable transactions. In the next section, we explore the evolution of Web services standards and the fundamental principles behind these plug able extended standards. Evolution of Web services standards Standards are critical to interoperability within a distributed computing platform, especially an

advanced platform that provides a serviceoriented, loosely coupled, cross-platform programming model. Standards enable platform services to more simply integrate with the middleware and infrastructure. This, in turn, also helps to reduce the complexity of heterogeneous and cross-enterprise orchestration and integration. The WSRF standard. WSRF is a collection of specifications to support grid services or other stateful resources (resources whose behavior is defined with respect to their underlying state) and is comparable to OGSI. There are many motivations behind the WSRF specifications. This alignment will continue to help define open standards through interoperable and compatible plug-and-play service extensions to the grid architectures, thereby increasing acceptance and facilitating integration. Through this alignment with the Web services stack, grid services can use existing Web services standards, such as WS-Notification, WSAddressing , and WS - Security, and build extensions for extended capabilities such as service state data, lifetime, grouping , and reference management. Introduction to WSRF There are many motivations behind the WSRF specifications. The most notable contribution of WSRF is to bring grid and Web services standards together. This requires the alignment of WSRF with SOA principles. This alignment helps to further define open-standards, interoperable, and plug-and-play service extensions to the grid architecture. It has been noted that the OGSI specification, as opposed to WSRF, tends to be more object-centric, as a complex set of concepts with an over utilization of XML schemas; some argue that its extensibility features are not well suited for existing Web services tools. Another motivating factor is the convergence of grid services to align with existing languages, programming models, tools, and technology directions in Web services, systems management, and on demand computing. Some of the best examples of this convergence are in Web Services Distributed Management (WSDM) and in IBMs on demand infrastructure virtualization areas. The WSRF specifications are built on top of the implied resource pattern, as described in the following

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section. These extended sets of specifications now enable a stateful resource to manage its lifetime, send and receive notification on state changes, expose state data as XML documents, and manage faults. Grid Applications Based on our earlier discussion, we can align Grid Computing applications to have common needs, such as what is described in (but not limited to) the following items: Application partitioning that involves breaking the problem into discrete pieces Discovery and scheduling of tasks and workflow Data communications distributing the problem data where and when it is required Provisioning and distributing application codes to specific system nodes Results management assisting in the decision processes of the environment Autonomic features such as selfconfiguration, self-optimization, selfrecovery, and self-management

job execution, or another meta-scheduler or a cluster scheduler for parallel executions. The jobs submitted to Grid Computing schedulers are evaluated based on their servicelevel requirements, and then allocated to the respective resources for execution. This will involve complex workflow management and data movement activities to occur on a regular basis. There are schedulers that must provide capabilities for areas such as (but not limited to): Advanced resource reservation Service-level agreement validation and enforcement Job and resource policy management and enforcement for best turnaround times within the allowable budget constraints Monitoring job executions and status Rescheduling and corrective actions of partial fail over situations

Resource Broker The resource broker provides pairing services between the service requester and the service provider. This pairing enables the selection of best available resources from the service provider for the execution of a specific task. These resource brokers collect information (e.g ., resource availability, usage models, capabilities, and pricing information) from the respective resources, and use this information source in the pairing process. In general cases, the resource broker may select the suitable scheduler for the resource execution task, and collaborate with the scheduler to execute the task(s). The pairing process in a resource broker involves allocation and support functions such as: Allocating the appropriate resource or a combination of resources for the task execution Supporting users deadline and budget constraints for scheduling optimizations

Let us now explore some of these Grid applications and their usage patterns. We start with schedulers, which form the core component in most of the computational grids. Schedulers Schedulers are types of applications responsible for the management of jobs, such as allocating resources needed for any specific job, partitioning of jobs to schedule parallel execution of tasks, data management, event correlation, and service-level management capabilities. These schedulers then form a hierarchical structure, with meta-schedulers that form the root and other lower level schedulers, while providing specific scheduling capabilities that form the leaves. These schedulers may be constructed with a local scheduler implementation approach for specific

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Load Balancing The Grid Computing infrastructure loadbalancing issues are concerned with the traditional load-balancing distribution of workload among the resources in a Grid Computing environment. This load-balancing feature must always be integrated into any system in order to avoid processing delays and over commitment of resources. These kinds of applications can be built in connection with schedulers and resource managers. The workload can be pushed outbound to the resources, based on the availability state and/or resources, and can then pull the jobs from the schedulers depending on their availability. This level of load balancing involves partitioning of jobs, identifying the resources, and queuing of the jobs. There are cases when resource reservations might be required, as well as running multiple jobs in parallel. Another feature that might be of interest for load balancing is support for failure detection and management. These load distributors can redistribute the jobs to other resources if needed. Grid Portals Grid portals are similar to Web portals, in the sense they provide uniform access to the grid resources. For example, grid portals provide capabilities for Grid Computing resource authentication, remote resource access, scheduling capabilities, and monitoring status information. These kinds of portals help to alleviate the complexity of task management through customizable and personalized graphical interfaces for the users. This, in turn, alleviates the need for end users to have more domain knowledge than on the specific details of grid resource management. Some examples of these grid portal capabilities are noted in the following list: Querying databases or LDAP servers for resource-specific information File transfer facilities such as file upload, download, integration with custom software, and so on Manage job through job status feedbacks

Allocate the resources for the execution of specific tasks Security management Provide personalized solutions

In short, these grid portals help free end users from the complexity of job management and resource allocation so they can concentrate more on their domain of expertise. There are a number of standards and software development toolkits available to develop custom portals. The emerging Web services and Web service portal standards will play a more significant role in portal development. Integrated Solutions Many of the global industry sectors have witnessed the emergence of a number of integrated grid application solutions in the last few years. This paper focuses on this success factor. These integrated solutions are a combination of the existing advanced middleware and application functionalities, combined to provide more coherent and high performance results across the Grid Computing environment. Integrated Grid Computing solutions will have more enhanced features to support more complex utilization of grids such as coordinated and optimized resource sharing, enhanced security management, cost optimizations, and areas yet to be explored. It is straightforward to see that these integrated solutions in both the commercial and noncommercial worlds sustain high values and significant cost reductions. Grid applications can achieve levels of flexibility utilizing infrastructures provided by application and middleware frameworks. Grid Infrastructure The grid infrastructure forms the core foundation for successful grid applications. This infrastructure is a complex combination of a number of capabilities and resources identified for the specific problem and environment being addressed. In initial stages of delivering any Grid Computing application infrastructure, the

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developers/service providers must consider the following questions in order to identify the core infrastructure support required for that environment: 1. What problem(s) are we trying to solve for the user? How do we address grid ennoblement simpler, while addressing the users application simpler? How does the developer (programmatically) help the user to be able to quickly gain access and utilize the application to best fit their problem resolution needs? How difficult is it to use the grid tool? Are grid developers providing a flexible environment for the intended user community? Is there anything not yet considered that would make it easier for grid service providers to create tools for the grid, suitable for the problem domain? What are the open standards, environments, and regulations grid service providers must address?

Security Resource management Information services Data management

Security The heterogeneous nature of resources and their differing security policies are complicated and complex in the security schemes of a Grid Computing environment. These computing resources are hosted in differing security domains and heterogeneous platforms. Simply speaking, our middleware solutions must address local security integration, secure identity mapping, secure access/authentication, secure federation, and trust management. The other security requirements are often centered on the topics of data integrity, confidentiality, and information privacy. The Grid Computing data exchange must be protected using secure communication channels, including SSL/TLS and oftentimes in combination with secure message exchange mechanisms such as WS-Security. The most notable security infrastructure used for securing grid is the Grid Security Infrastructure (GSI). In most cases, GSI provides capabilities for single sign-on, heterogeneous platform integration and secure resource access/authentication. The latest and most notable security solution is the use of WS-Security standards. This mechanism provides message-level, end-to-end security needed for complex and interoperable secure solutions. In the coming years we will see a number of secure grid environments using a combination of GSI and WS-Security mechanisms for secure message exchanges. Resource Management The tremendously large number and the heterogeneous potential of Grid Computing resources causes the resource management challenge to be a significant effort topic in Grid Computing environments. These resource management scenarios often include resource discovery, resource inventories, fault isolation,

2.

3.

4.

In the early development stages of grid applications, numerous vertical towers and middleware solutions were often developed to solve Grid Computing problems. These various middleware and solution approaches were developed for fairly narrow and limited problemsolving domains, such as middleware to deal with numerical analysis, customized data access grids, and other narrow problems. Today, with the emergence and convergence of grid serviceoriented technologies, including the interoperable XML-based solutions becoming ever more present and industry providers with a number of reusable grid middleware solutions facilitating the following requirement areas, it is becoming simpler to quickly deploy valuable solutions. In general, a Grid Computing infrastructure component must address several potentially complicated areas in many stages of the implementation. These areas are:

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resource provisioning, resource monitoring, a variety of autonomic capabilities, and servicelevel management activities. The most interesting aspect of the resource management area is the selection of the correct resource from the grid resource pool, based on the service-level requirements, and then to efficiently provision them to facilitate user needs. Another valuable and very critical feature across the Grid Computing infrastructure is found in the area of provisioning; that is, to provide autonomic capabilities for self-management, self-diagnosis, self-healing, and self-configuring . The most notable resource management middleware solution is the Grid Resource Allocation Manager (GRAM). This resource provides a robust job management service for users, which includes job allocation, status management, data distribution, and start/stop jobs. Information Services Information services are fundamentally concentrated on providing valuable information respective to the Grid Computing infrastructure resources. These services leverage and entirely depend on the providers of information such as resource availability, capacity, and utilization, just to name a few. This information is valuable and mandatory feedback respective to the resources managers discussed earlier in this chapter. These information services enable service providers to most efficiently allocate resources for the variety of very specific tasks related to the Grid Computing infrastructure solution. Data Management Data forms the single most important asset in a Grid Computing system. This data may be input into the resource, and the results from the resource on the execution of a specific task. If the infrastructure is not designed properly, the data movement in a geographically distributed system can quickly cause scalability problems. It is well understood that the data must be near to the computation where it is used. This data movement in any Grid Computing environment requires absolutely secure data transfers, both to

and from the respective resources. The current advances surrounding data management are tightly focusing on virtualized data storage mechanisms, such as storage area networks (SAN), network file systems, dedicated storage servers, and virtual databases. Conclusions There is a natural convergence of grid services and Web services. This convergence is occurring right now, and it is happening in all industries. It can be observed in the evolutionary thinking of those people who are members of VOs and are participating in this transformation. The grid architecture and global standards serve a major role in determining the adoption rate of grids in the commercial world. These standards are still evolving. Grid-service conventions are nontrivial in their functions; they solve (in a new way) some of the fundamental issues in distributed computing. These issues relate to the naming, creation, discovery, monitoring , and management of the lifetime of stateful services. More specifically, these conventions support very important distributed computing areas, including named service instances, a two-level naming schema that facilitates traditional distributed system transparencies, a base set of service capabilities, including rich discovery facilities, and explicitly stateful services with lifetime management capabilities. The grid adoption models provide an innovative means for accomplishing this transformation, while shortening the time required to deliver grid computing and other capabilities of grid services. Clearly, the emergence of grid services is an important milestone in the development of global Web services. Grid services are important because they provide uniformity and consistency for many vital distributed system functions. References:
Grid Computing by Joshy Joseph, Craig Fellenstein , Prentice Hall/ PTR The Grid: Blueprint for a New Computing Infrastructure, Ian Foster, Carl Kesselman (Editor)

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Grid ComputingGrid 2000, R Buyya, M Baker, Springer Performance Analysis and Grid Computing, edited by Vladimir Getov, Michael Gerndt, Adolfy Hoisie, Allen Malony, Barton Miller, Springer GIS: A Computing Perspective, Mike Worboys, Matt Duckham, CRC Press Parallel Computing Technologies: 5th International Conference, Pact-99, St. Petersburg, Russia, Victor Malyshkin, Springer

Statistical Data Mining and Knowledge Discovery, Hamparsum Bozdogan, CRC Press Berman, F., Fox, G.C. & Hey, A.J.G. Grid Computing: Making the Global Infrastructure a Reality. San Francisco, CA: Wiley, 2003. Foster, I. & Kesselman, C. Globus: A ToolkitBased Grid Architecture. Pages 259-278. Morgan Kaufmann Publishers (1999). The Anatomy of the Grid: Enabling Scalable Virtual Organizations. Foster, I., Kesselman, C., Tuecke, S.

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Figure One

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