Saturday, October 25, 2008

Why John McCain Should Lose

I admire John McCain. He was, indeed, a brave soldier and an unerring patriot. A great statesman, who served his country for more than four decades with great devotion and integrity. Integrity - how important is that in Washington, when the lobbyists and special interests made the American democracy look silly! Over these years, he stood for principled behaviour, decency and whatever is good about the American politics. There was no better man than him to lead America in an age of uncertainty, dishonesty and violence.

George W Bush and his clever campaign administrators not only foxed Al Gore and stole his election in 2000, they outwitted McCain that year in the primaries. It was a sad win - backed by an indecent campaign of personal attacks and misinformation. It was a game of money and electoral calculations, which triumphed over principles and public service. It was a turning point in American history: What a difference a McCain presidency could have made in the last eight years.

But when John McCain runs again this November, he is sadly out of touch. This time, he has done many things right. He has played to the electoral calculations. He said the right things, even some which goes against his professed principles and whatever he stood for in the last four decades. He played to the camera. To offset his age and perceived lack of charm, he chose pretty Sarah Palin as the running mate - and then endowed her with $150,000 worth of clothing - for the camera. He made right noises, evoked Joe the plumber, though he possibly knows that Joe can't afford to buy clothing at the New york department stores he sent Sarah Palin to.

In the middle of an economic crisis, McCain talked about tax cuts, and how that will energise the economy. He talked about chasing American enemies all over the world. He derided the policy of 'sharing the wealth' and talked about 'creating the jobs'. He went below the belt - just like Bush has done to him - and started a whispering campaign that Obama is Muslim [false], hobnobs with terrorists [false] and subscribes to extreme views [false]. He tried to evoke American fears and American insecurities. And, by that, he proved the proposition I am making here - he is out of date, out of touch and out of sync with America.

I am not American. I have, in fact, never been to America. However, I have American friends, and more importantly, American heroes. Like many people in my generation, I have grown up with an admiration for American enterprise and American values. I lived, in my life, an essentially American dream - no matter where you come from, you can achieve what you want to achieve, through hard work and commitment. This is what sustains me through my personal failures and disappointments; this is central to all that I have done and will do in future.

And, this is why, I know, that American people today, in the middle of a crisis, will be inspired by hope and not be dominated by fear; I know they will not give up their leadership of the world and go home, but would want to set another example of emerging from a crisis.

This is where I feel the contest between John McCain and Barack Obama today looks like the one between Herbert Hoover and Franklin Roosevelt on the wake of the Great Depression. Here, at one end, we have someone who wants to administer more of the same medicine that brought in the disaster in the first place. John McCain believes that the self-interest of the banks and industrialists will keep the system going, and wants to give money in their hands to create jobs and prosperity. That would have been a great slogan in 2000; not so in 2008, today even Alan Greenspan, the high priest of monetarism, is accepting his mistakes in allowing that to happen. McCain is devoid of any ideas beyond this age-old prescription, and he refuses to see this as passé. This is where he fails, in imagination, to connect with realities of today. This is where America needs an all new deal from Barack Obama.

Also, in the area of international engagement, times are very different from that of 2000. John McCain's foreign policy doctrine is essentially similar to George W Bush - an unilaterally arrogant statement of America's superior military muscle. But that is past too. A McCain presidency may turn out to be more efficient than Bush's, but not much different in substance. America today, while militarily superior, but morally weak and economically wounded. John McCain, of all people, should know that victory in war does not come from military power alone. America needs to rebuild its moral leadership in the world, and John McCain, again, has no idea about how to do this.

Moreover, after two decades of division, American people needs unity and decency. John McCain seemed to have lost interest for decency. He has caught on the political disease - exhibitionism - and apparently chose his running mate because of her gender and good looks than any sound political considerations. He forgot that a Presidential Running Mate is not President's Show Girl, but a stand-by president. Sarah Palin must be a very formidable woman; but when she talks about Obama-Biden's readiness as President, the farce becomes unbearable.

John McCain is still sparkling, but he is peddling old formula fit for a world that no longer exists. He is trying to live George W Bush's Rules of Winning an Election. He is representing the American disease today - of fear and of chauvinism.

This is why his time is up. The old soldier needs to lose this one final time.

Friday, October 24, 2008

New India's Road Test

Today is being called Black Friday in India as the BSE Sensex, the index of 30 most-traded shared in the Mumbai Stock Exchange, plunged by 1071 points. This fall, one of the biggest in a single day in the history of the index, takes the Sensex to 8700 points. This was clearly unthinkable in January, when the index peaked 21,000 point mark. Even in March, when the Sensex experienced big falls and credit crunch was well under way, the Sensex was hovering around 17,000 mark. Given that the Indian economy was experiencing a 12%+ inflation, the rupee was weakening, the government was facing a crisis and oil prices were firmly around the $120 mark, that was a lot of optimism.

I remember meeting a stock broker around the time in Mumbai, who tried to explain to me why investing in stocks still at that level made sense more than any other asset, saying - "how low can it possibly get? 12,000 mark? But it will still bounce back, because the Indian economy is fundamentally strong. And, you know why this is - because we save." I am sure those words are coming back to haunt him now, but it is not just the stock market, which is in a worrisome state. The oil prices are low [though the news is that OPEC is agreeing on a production cut so that they can go back up], but Indian inflation is still at 9% level. The rupee has plunged, currently trading at over Rs. 50 a dollar. I also remember an Indian banker assuring me that India will not be affected by the current crisis, as they 'have always lent 80p per rupee held as Capital'. In effect, what he was saying that India is in a permanent state of credit crunch anyway, and the situation can't get much worse.

However, it seems it is going to get worse for a number of factors. Indian banks may escape this crisis because of their risk-averse nature, but that is not going to help the economy anyway. Besides, because Indians save, and they are more likely to do so in the middle of a crisis, and as the spending spree of the new 'IT-enabled' middle class comes to a halt, the economy may come to a sudden standstill. Successive Indian governments systematically neglected agriculture, through a combination of protection of vested interests, neglect of land reforms and allowing the infrastructure and institutions to degenerate. An urban downswing will now catch the country unprepared and the demand will sink - this isn't going to be a pretty sight.

This is Indian economy's big test. Today is possibly the day when the financial tsunami of the Western Credit crunch finally reached Indian shores. This is the test for country's economic resilience, in which I doubt, and the ability of our policy-makers to prove that there is substance in the claim of economic growth they have been making in the media for so long. Rupee has depreciated against the dollar by 20% in the last few weeks, so the rest of the world does not think so anyway; if the government can not prove this quickly, and effectively, we may face a meltdown - Rupee going bust with all our savings.

India has made two attempts to build a rich, capitalist economy. The first, under Nehru's stewardship, looked at the state guiding the economy through its formative phase, building the necessary institutions, developing indigenous capacity and allowing the capital formation and infrastructure building. This was a flawed attempt, for two reasons. Experiences worldwide has shown us that the state can not do this institution building. And, second, because we tried to do it for too long - well into 1990s, when the need for such a guiding hand was over. In summary, there was a 'failure of imagination' beyond Nehru, which we suffered from.

The second attempt started on the ashes of the Nehruvian model, more as a knee-jerk reaction to IMF conditions than a commitment to policy. The second attempt, largely stewarded by Manmohan Singh, then Finance Minister and the current Prime Minister, was about letting go of the economy. This was a welcome step, more in line with the fashion of the day, and unlocked the Indian entrepreneurs who were readied by the Nehruvian intervention but were then kept in a leash by lack of imagination. But, while the economic policy leaped to the other extreme, too little was done to reform the society and invest in institution building. Over the years, India built a corrupt and inefficient bureaucracy which encouraged cronyism, and this is a bigger bane of capitalist development than trade tariffs. Years of systematic underfunding of primary education left the country with a two-tier education system - world-class at the top but poor in most other parts. The administrative system, and a prolonged affirmative action programme, discouraged meritocracy. Vested interests blocked agrarian reform. Forced urbanization created crime hot spots. So, while the myth of a new India was created, this was limited to pockets of affluence and was on shaky narrow foundation.

This is what will be put on test next few days. Fittingly, Manmohan Singh, the architect of this incomplete renaissance, is at the helm, which means he has to answer most of the questions about the failure, if there is a failure. It is not just the stock market phenomena, which would have happened as the Foreign Institutional Investors start their customary cut-and-run; if the indicators are correct, the pain will soon reach the main street and savings bank accounts of millions of people. The Indian public must be ready for this test.

Wednesday, October 22, 2008

Memoirs of a Recession

A rare opportunity to do some creative writing came my way. A friend publishes a private circulation journal and wanted a few of us to 'project in the future to assess the recession'. More of a fun exercise, but this allowed me to think beyond my worries today. I have her permissions to put this on my blog.

So, here it is, a take on today's recession written in the year 2040.

My only qualification for being asked to write about the Great Recession of 2009/10 is that I had been an observer and a participant. There are many studies then, and since, regarding what caused the recession, and how it played out - on the economies across the world and also on the politics and culture of the age. My economics is rusty, and I would not dare tread there. However, my age gives me the advantage of perspective, and this is exactly what I wish to share here.

The Great Recession of 2009/10 is often compared with another world changing event, the Great War of 1914-1919. I know I am showing my age and talking about an event so distant. While I am not as old to have lived through the Great War, I know the time before the war was a time of exuberance, when everyone expected the world to go on as it was and assumed that the empires of the time would last forever. The Great War changed all that - seemingly irrational and trivial decisions taken by autocrats who ran those empires rocked the apple cart and changed how people thought about empires altogether. The unending war made people believe the world will come to an end. And, it almost did.
There are many similarities between the Great War and the Great Recession. Not just these were watershed events between hope and despair, these were global events. The Great War made war global; the Great Recession, recession. I come from India, though at the time of Great Recession, I lived in London. In India, the previous global recessions were like distant canon fire, we heard about it and it disturbed our sleep, but never affected us personally. But it was different in the Great Recession - when our economy stumbled, rupee devalued and the glamour jobs in large American corporations vaporized. It brought recession to our doorstep, just as the Great War brought European wars to us.

The other similarity between the Great War and the Great Recession was that they were unfinished events. Students of history knows that the Great War ended in the treaty of Versailles in 1919, only to erupt again 20 years later in a bigger war, the Great War of 1939 - 1945. The reason why the Great War was left unfinished because the combatant powers exhausted themselves fighting each other, and took exhaustion as resolution. It actually never is, as Great Recession will go on to show six decades later. But, as I say, Great Recession of 2009/10 was also an unfinished business, and we continued to live in its aftermath, only to reach here today - when a bigger, all-encompassing Recession 2.0 is staring at our face.

At the time, however, the Great Recession itself was called Great Depression 2.0, in a reference to the big stock market crash of 1929. While that was fashionable, this was not a like-for-like comparison. The Great Depression 1929, which continued to have a long term effect on the world economy, was, in a way, part of a broader shift which started with the Great War I and culminated in Great War II. Its reach was somewhat limited to banks and stock markets of America and Western Europe, and in a large part of the World, this was like a distant canon fire. The depression was, then, not yet global.

There were two other significant differences as well, which became clearer in the years after 2010. First, there were no mass media, except newspapers, during the Great Depression. Newspapers, by their very nature, was for the literate, wealthy city folks. The news gathering was largely local, and often time-lagged. In contrast, by 2009, news was carried by TV and the Internet, real time, to almost everyone who cared to watch. I recall a friend joking - "Great Depression was depression once a day, but this recession is recession 24x7'. Apart from being a truly global recession, the Great Recession was also a truly universal recession.

The second difference was the power structure of the world in 1929 as against 2009. The world in 1929 allowed a fresh accumulation of capital by extracting it from the colonies and submerging them with unequal tariffs. By 2009, that cycle was largely over - the poor nations were by then better organized and more aware, and fewer of them were being run by 'client' governments. So, there was a solution available in 1929 - spending the way out of trouble. As the experiences of 2010 showed us, that's exactly what the governments tried to do, but failed and got us to a bigger crisis.

But, before I get to the aftermath, I shall spend a moment on how the Great Recession happened in the first place. The prevailing wisdom at the time was that this caused by sub-prime lending by banks, which, in plain English, loans made to poor people who could not pay back. The word 'sub-prime' became a part of the lexicon in 2007, and it looked like a great steal, wherein the poor people stole all the money that hardworking entrepreneurs were earning.

However, my personal experiences during the time, and research in subsequent years, showed that while sub-prime lending is indeed the reason, the borrowers who defaulted were not exactly the stereotyped poor Joe. In fact, the Great Recession had nothing to do with any redistribution of prosperity, as was commonly seen. Contrarily, this was more about speculators stealing a bit of real economy; a nexus of bankers, corrupt builders and leveraged speculators taking a slice out of taxpayers' money. In the end, all of us were 'sub-prime'. All of us who speculated on buying a house when we don't need one, all of us who shored up credit card debts because the money was cheap, and even those governments who spent money irrationally because it was available. Banks lent money to banks with the same irrational exuberance, and countries bought up sovereign debts assuming that this could go on. All of that was sub-prime.

At the time, Jack Welch, a highly respected retired executive, called this 'Murder in the Financial Express' in the column he wrote, along with his wife, Suzy Welch, in the Businessweek. While the title may sound cheesy, he likened the whole affair to a famous crime novel of yesteryear, Murder in the Orient Express, in which a murder takes place on a running train, where almost all the other passengers were involved in the crime. He made his point - not just the bankers here, but everyone else running the economic system, including the presidents and prime ministers, were involved in causing the recession.

However, in all fairness, not one of them can be faulted individually. I recall two past Chairmen of the Federal Reserve, Paul Volcker and Alan Greenspan, were singled out for most of the flack. Their fault: Mr. Volcker adopted a solely monetarist approach to economic management, after the fashion of his time, and Mr. Greenspan kept the economy going by keeping the interest rates low even when storm clouds were around the corner.

At the hindsight, it seemed grossly unfair to blame them for the trouble. If Mr. Greenspan raised the interest rates higher, he would have been blamed for obstructing economic growth. They could afford to keep the interest rates low and let the sub-prime lending to happen because all the countries in the world were ready to loan money to the United States at a low interest rate. These two men were not world's bankers, as media almost made us believe then; they were United States executives carrying out a mandated job, enabled by the foolishness of the rest of the world.

I also remember, at the time, the comparisons were made with the recessions of 1970 and 1990. 'The biggest recession in 30 years' - you would have often found a headline. These comparisons were soothing and misleading in a way. The Great Recession was the first GREAT recession - nothing in human history that far could really compare with that. Joseph Schumpeter, a mid-20th century economist, saw economic cycles operating in smaller short-term curves, all of these collectively forming up a great long term curve. The Great Recession was seen, correctly, as the end of the post-Great War II expansion of the real economy, turn of the long-term economic cycle, quite unlike the short-term ones in 1970 and 1990.

There was another man who was barely mentioned at the time, as his theories were completely out of fashion. His name was Karl Marx, an amateur 19th century economist, who realized the crisis-prone nature of the capitalist economy and theorized that capitalism was bound implode, and the human society could only be preserved by a systemic diffusion of wealth and creation of shared prosperity and opportunity. Marx had a brilliant vision, but he was too optimistic as a man, and thought that he could get the world rid its capitalist follies within one lifetime. He did not succeed. His followers tried the grand experiment in Russia, and then elsewhere, to create a post-Capitalist society, which failed miserably. With its political underpinnings, Marx's theories were shunned by mainstream economists and policy-makers ever thereafter. The Great Recession, in many ways, affirmed his thoughts, but his ideas were still a political no-go. If his warnings were heeded, the policy prescriptions following the recession would have facilitated a gradual restructuring of the society, and would have made it ready for the coming age of scarcity. Alas, that was not to be.

Indeed, what happened after the Great Recession is more significant than what happened during it. I recall seeing many essays during the time describing the recession as the start of a shift away from American world power, and the emergence of the Chinese, or the Indians, as the pre-eminent countries. Nothing of that sort actually happened, though. The world continued to have faith in America's economic powers, its rule of law and banking system, and the United States government continued to use the cheap money made available to it to spend its way out of trouble. This effectively ended the recession - by diffusing it through spread. This was the reverse of Marx's solution - this spread the bankruptcy and misery rather than opportunity and prosperity - and created a sub-prime borrower of gigantic proportion, the United States itself.

Politically, the Great Recession made the world feel more global. The Great Wars undermined the nation states. The Great Recession undermined the national economies. The implications of the actions of distant traders in Tokyo, New York or London reached our doorsteps. It was no longer enough for an American President to protect the 'American Lifestyle'. One good thing : The Great Recession psychologically readied us for scarcity - of not just oil, but for an age when even clean air and water would not be sufficient.

And, then there was this question of leadership. I remember the election day of November 2nd, 2008, when I was in Bangladesh and watched America choose between John McCain and Barack Obama. Looking at it today, it turned out to be as significant as the choice American public faced, and made, between Herbert Hoover and FDR in the aftermath of the Great Depression, one trying to give more of the same old prescription and one promising change and a fresh approach to solve the problems. In all fairness, none of them had the final answer, being the system's children as they are. But, at least one of them cared as much for the bank bailouts as the medical care for the aged and the elderly. Thankfully, Americans made the right choice at the time and that sustained its economy, and more importantly, its society, through the crisis.

However, while American society was preserved through some exceptional leadership, I still see the Great Recession as an unfinished business. And, the current crisis of the bankruptcy of the nations appears be a bigger, deeper and possibly the final crisis of the current economic system. I am not a doomsayer and I have faith on the human ability to find solutions. I shall keep my faith - we are indeed capable of building a better, stabler economic system than the current one, which causes so much of misery to so many people, so frequently.

Tuesday, October 21, 2008

When Does Business Gift Become A Bribe: A Marketing Policy Perspective

Introduction : The Business of Gift Giving

Business gift giving has always been common and contentious at the same time. Business gifts are usually seen as an ‘advertising, sales promotion and marketing communication medium’ (Cooper et al, 1991). Arunthanes et al (1994) points out that such gifting is practised usually for three reasons: (a) in appreciation for past client relationships, placing a new order, referrals to other clients, etc.; (b) in the hopes of creating a positive, first impression which might help to establish an initial business relationship; and (c) giving may be perceived as a quid Pro quo (i.e. returning a favour or expecting a favour in return for something).

The practitioners of gift-giving generally argue that doing business is often an aggregation of personal interactions and relationships, and gift-giving should be seen as a natural way of maintaining and enhancing these relationships. ‘Business gifts, especially one given in the course of the festive season, is regarded as an invaluable means of strengthening corporate relationships and creating goodwill’. (Greaves, 2001) Business gift-giving has also shown itself to be effective in creating favourable relationships among industrial consumers in the United States (Beltramini, 1992), and also in increasing business and building long-term goodwill among realtors (Shama and Thompson, 1989).

While it is generally accepted that gift giving may enhance the prospect and image of a company, businesses must tread carefully as corporate gift giving has several legal, ethical and practical questions attached to it. Most observers agree that there is a very fine line between business gift giving and bribing, and it is seldom clear when the line is crossed. TIME reported, back in 1965, that ‘in Finland, any gift exceeding $30 is considered a straight bribe’ (TIME, 1965), but the situations today are rarely so straight-forward. Some research also indicates that gifts of high value, and gifts to prospects rather than existing customers, affect supplier choice negatively (Trawick et al, 1989, cited in Bodur et al, 2005).

Kanter (2008) reports that 20% of the 100 buyers surveyed by Supply Management magazine in the UK have reported of being offered an inducement to secure business, but ‘purchasers remained divided on what actually constitutes a bribe’. While William Fyfe, the Procurement Manager of National Trust Scotland, reported ‘a zero tolerance approached’ and accepted nothing, others did not think ‘hospitality, such as lunch, as bribe’. Some of the respondents accepted gifts ‘within the acceptable levels of company policy and always with the knowledge of my line manager’, one of them turned down an offer as this could affect his future decisions about the supplier.

At least one participant in the Supply Management survey mentioned above pointed out that the risks of bribery has increased with globalization. Undeniably, the complexity of issues related to Business gift-giving has increased manifold as businesses have to deal with global suppliers, customers and employees. The global businesses are not only exposed bribery laws of different countries, which may take different views regarding what constitute a bribe, but also require to reconcile several cultural issues in terms of policy.

Arunthanes et al (1994) points out that while gift giving is a ‘critical part of conducting the business’ in High-Context cultures such as the Japanese, Arabs and in the Mediterranean, it is only an ‘optional custom’ in Low-Context cultures like US, Germany and Switzerland. Even if such broad cultural contexts are accepted (Often, a company’s culture may differ from the culture of its nation of origin, because the executives running the company may have come from elsewhere, or the business has grown accustomed to dealing with international customers), global business transaction may still involve scenarios where a high-context gift-giver has to take extreme caution to not to offend a low-context gift receiver, and where a low-context gift giver may have to put in an effort not to disappoint and to appear cold and detached to a high-context gift receiver.

In summary, gift-giving is a complex policy area facing the companies today. However, the implications of getting it wrong can have significant impact on the company’s performance, and create a number of legal, ethical and brand-related issues. This paper will attempt to examine the various facets of this issue from a marketing strategy perspective and attempt to recommend a set of guidelines that businesses can use to formulate effective gift policies.

Case Study: Microsoft ‘Bribes’ The Bloggers

Joel Spolsky writes JOEL ON SOFTWARE, an influential blog on software industry. He reported the story of Microsoft’s attempt, through Edelman, its PR agency, to get bloggers’ attention to its new software, Windows Vista. During Christmas Season of 2006, Microsoft sent out 90 Acer Ferrari laptops, loaded with Windows Vista Operating system, to influential bloggers. The accompanying email from a Microsoft employee mentioned that ‘this is a review machine’ and stated ‘while I hope you will blog about your experience with the PC, you don’t have to.’ It also said that ‘you are welcome to send the machine back to us after you are done playing with it, or you can give it away on your site, or you can keep it’. []

This gift generated heated debate, and many bloggers who received the gift expressed joy in their newfound importance, but ridiculed the effort [One of them asked for free socks to be sent out next]. B.L. Ochman, who writes a blog on Social Media and Internet Marketing trends, titled her piece ‘Edelman has new ethics scandal brewing with Microsoft’s Blogger Bribe campaign’. She alleged that the campaign of giveaway laptops, valued at around $2000, was conceived to generate a false opinion about Windows Vista, as the software, like previous Microsoft software releases, may run well on this brand new machine, but is expected to create problems when users try to upgrade their operating system on older machines.

Ochman also quoted to some length the Journalist Dan Warne – a news editor from APC, the Australian IT Magazine and Web portal. Warne left a comment on IStartedSomething, a blog hosted by Long Zheng, a Melbourne-based student and one of the 90 bloggers who received and reported the gift on their blog.

With his mainstream media credentials adding weight to his comment, Warne wondered: “But giving away whole computers? Microsoft isn’t a computer company! It’s a bit like the owner of a motorway giving journalists free cars.” Pointing out that the giveaway laptops are top-of-the-line and expensive, he commented “Microsoft’s PR people would no doubt argue that this is about giving bloggers access to a machine that’s going to give them the best experience running Vista, and will allow them to fully explore the mobility features of Vista. But frankly, if that were the case, the machines could have been a six month loan. –Giving the machine to the bloggers is just … weird … given the risk of reputation damage to Microsoft.”

On the other hand, Robert Scoble, who writes Scobleizer, and widely seen as one of the pioneers of corporate blogging, took the position that “That is a GREAT idea. After all, how can anyone have a decent conversation about Windows Vista without having put a bunch of time on one of the machines?” He further says, “Now, regarding blogger ethics. Did you disclose? If you did, you have ethics. If you didn’t, you don’t. It’s that black and white with me.” []

Joel Spolsky argues that Scoble is indeed wrong and sending out laptop – ‘yours to keep’ – is ‘ethically indistinguishable from bribery’. He argues that disclosures by bloggers are not enough, and since they may still feel obliged to blog about it and regardless of what the consumers think about their credibility, ‘their message is corrupting the medium’.

Microsoft’s response, as reported in an Australian News Site, was that this was meant to be an evaluation program, and the bloggers ‘had the option of sending them back or keep them for further discussion’. As justification of giving away such expensive laptop models, it was mentioned that “the laptops allow the bloggers to experience the full capacity of Windows Vista".

Yet, others, like Jeremy Peppers of POP!PR, a PR practitioner and blog writer, saw flawed execution, rather than an ethical misstep, in this fiasco. [] Yet others suggested that this whole controversy was started by bloggers who did not receive a laptop and were jealous of those who did. [Andy Beal on] It was further suggested that Microsoft’s ‘undue’ attention to bloggers turned the mainstream media against them [veteran software reviewers writing for well-respected magazines only got a pre-release disk of Vista], and these columnists added further momentum to the furor over the issue.

The jury is still out on the case, but the debate over this issue drowned whatever little positive opinion Windows Vista had generated in the blogs. While no one thought there is a legal point to be won here, this stands as a good example of a business gift program going wrong. Microsoft not only wasted the dollars spent in gifting [none of the bloggers reported to have returned the laptops], but ended up getting severe bad press for weeks and the debate sourly overshadowed the commercial launch of Windows Vista.

From a marketing perspective, it is imperative for businesses, therefore, to evolve robust strategies to avoid such fiascos related to gift-giving. However, before attempting to develop a policy framework which will enable businesses to do this, it may be worthwhile to look closer into this debate and understand what may be called the three dimensions of Business-Gift-versus-Bribe debate.

The Three Dimensions of Business-Gift-versus-Bribe Debate

The case study above provides a three dimensional framework to understand when a business gift may be perceived as a bribe, or, in other words, where it seems to have crossed the ethical threshold. This understanding will form the basis of a clear set of rules to keep business gifting above-board and design a set of actionable policies which the business could follow.


The principal problem relating to Microsoft’s gift was its content itself. This is both about what it was [a top-of-the-line, shiny new laptop] and its price [$2000 or more]. Some commentators even argued that it is unrelated [‘Microsoft is not a computer company’].

Microsoft’s defense was that such a high-end machine was needed to showcase the full capability of Windows Vista. They pointed out that the bloggers were given the option of returning the machines or to give it away, and therefore the question of trying to bribe does not arise.

However, the key issue here is that Microsoft departed from the standard industry practice of shipping preview disks of software to opinion-makers. Whether $2000 laptops are less or more, or whether they are justified in the context of the accepted norms in the other industries [like sending out fashion clothing to movie stars], is beside the point. Microsoft broke a convention here by changing the nature of gifting practiced in the industry.

Also, sending out the machines around Christmas, Microsoft tried to tap in the Festive Gift goodwill – implying that these machines were indeed sent out as gifts.

The key lesson here is that what is being given as a gift defines the nature of gifting, and extreme care must be taken to define should be given out [or received]. While market price of the gift item can be used as a benchmark, the type of gift is as important as the price of it [If Microsoft gave out $2000 worth of software, this would not have been an issue]. It is always worthwhile to understand the convention, including knowing that something sent out around Christmas may indeed be perceived as a gift.


The other objection to this gift was why it was being given. It was argued that by giving such a disproportionate gift [most bloggers are amateur writers; Long Zheng, who received a laptop, was studying in the University of Melbourne at the time], Microsoft tried to induce a reciprocity in the bloggers. Though the email may have said ‘you don’t have to [write about Vista]’, this is more of a legal protection as the United States Corruption Law covers corporate gifts which are designed to induce action by the recipient. While Microsoft steered clear of this legal issue, they tried to exert a psychological influence on the bloggers to write about their ‘pleasurable’ experiences with Vista.

The other argument was that a laptop was given out to bloggers in the hope that they would lack the proper testing environment that mainstream tech journalists will have access to, and would write good things about Vista by seeing it at work in a brand new machine, tuned and tested for this purpose by Microsoft engineers. The experience of actual users, who may be influenced by these bloggers’ opinions, will be different – as they will have to install this software on an older machine running pre-existing software programs and will have no help from Microsoft in doing so. So, it was argued that this gift-giving exercise was designed to create a false opinion in the market.

While most businesses define what is a bribe and what isn’t in terms of the content of the gift, law in most countries consider the context of the gift to define the issue. So, regardless of the size, type and value of the gift, if it could be established that such gifts were given to induce, or with intent to induce, action, it will be regarded as an offence. The lesson here is that it isn’t enough for businesses to set clear value / type benchmarks for corporate gifts; it is also necessary to be sensitive to what these gifts are designed to do; and stop short of attempting to induce the receiver to any action that would cross the ethics threshold [for example, by being less than optimum for his/her employers or customers, by being factually wrong / false, or by being dangerous or harmful to anyone].


There was a prominent stream of opinion that Microsoft’s faux pa was all about bad execution due to misunderstanding the culture of blogging. This stream of opinion came primarily from PR and Marketing practitioners, who pointed out that Microsoft’s gift to elite bloggers violated the equality and sponsorship-free nature of social media [though there are services like Pay-Per-Post, they are deeply unpopular].

These observers maintained that this isn’t a question of content or context, but one of culture - because the bloggers [even those who received it] detested the practice while most physicians will treat a gift from a pharmaceutical company as perfectly normal.

This is the third, and clearly important, aspect of gift-giving : establishing clear protocol so that a gift is perceived as such. For businesses, this will translate into a third dimension of policy-making, wherein they will have to go beyond setting value/type benchmarks and consideration of induced action, and understand the gift-receivers’ mindset and culture before making the gift. This is possibly quite obvious in personal gift-giving; but somehow the idea of such discretionary gift-giving hasn’t gained ground in business. However, as illustrated with regard to international business relationships and again in the context of Microsoft’s mistakes, it is important to factor in the cultural preferences of the receiver before attempting to make a gift.

Towards a Strategy of Business Gift Giving

Many businesses today has clear policies on Business Gift Giving and Receiving, though most of these do not consider all the three dimensions as mentioned above.

For example, the Building Material supplies company, Wolseley, has a clear policy on Business Gifts, which states

It is recognised that the giving and receiving of business gifts is an integral part of the way in which some businesses operate. The giving or receiving of business gifts should, therefore, remain appropriate to the business and should be modest. The receipt or giving of modest gifts may be expensed in the normal way if paid for by a group company. The giving or receipt of more lavish gifts must be approved by the person's manager. The manager should ensure that an appropriate record is maintained. In cultures where the refusal of an expensive gift would give offence, such gifts may be accepted on the basis that they will become the local company's property, unless the managing director of the local company otherwise determines. [Wolseley Corporate Governance Policy;]

However, it must be noted that policies are not enough by themselves. Lucas (1995) reports how sixteen Honda executives pleaded guilty of taking bribes when it was established that they took extravagant gifts such as Rolex watches and cash in late 1980s and early 1990s when the company set a $50 limit for gifts. This is where the system of accountability, maintained through the usual chain of management, failed to work.
Gordon et al (2001) studied the corporate approach to bribery using 246 codes of conduct. It shows that despite a clear intent to contain bribery, the task is complicated because (a) it is difficult to define what constitutes bribery; and (b) the international policy framework for bribery is less developed. It was observed that while most companies made a public commitment to fight bribery, the codes differ in terms of how far they go in defining bribery, specifically in terms of (a) parties in corruption – some regard private bribery as well as that of public officials; (b) Active vs Passive Bribery – some codes take into account receiving bribes as well as giving them; and (c) Promising Bribery and Actual Bribery – some codes go further than others and spells out clear rules on solicitation. In this study, 13 standard management tools were cited to be used to control bribery - internal monitoring, monitoring suppliers, reports to Boards of Directors, use of compliance manuals, whistle-blowing facilities, signatures of directors, training, periodic compliance reviews by managers, employee signatures, internal auditing, disciplinary action and active communication.

To steer clear of Bribery but to maintain a healthy gift-giving culture which is beneficial to business, Lynn (2000) suggests that companies must have clear policies related to gift giving and receiving to steer clear of potential problems arising out of gift-giving. She pointed out three areas of policy-making – (a) Workplace gift giving, which should ideally be prohibited or restricted; (b) Acceptance of Gifts from Suppliers and other outside entities, where a clear guideline should be set for type and value of gifts the employees can accept, and a policy to return any gift that fall outside the set parameters; and (c) Giving Gifts to suppliers and other outside entities, where it would be important to define who can receive a gift, along with ‘how these gifts are selected and presented’ and also to cognizance of the gift policies of any company that is being included in the list.


Admittedly, this is a complex area of policy-making, but as the discussion above illustrate, businesses must engage in defining and maintaining a clear and consistent policy towards gifts. Given the convention, and the beneficial effects of gifts on business, they can not be ruled out altogether. But extreme care must be taken – as improper gifting can create legal issues, affect the morale, corrupt the employees and destroy the brand. Discretionary gift giving appears to be the key. The difficult part actually remains in creating a robust company culture, and a value system which rejects bribing in any form. With keener regulators and invasive media, it is increasingly clear that businesses must operate with a high ethical standard to survive. One may hope, therefore, that executive intent will not be in short supply.


Arunthanes, W., Tansuhaj, P. & Lemak, D.J. (1994), Cross-Cultural Business Gift Giving, International Marketing Review, Vol 11, Issue 4, Pg 44

Beltramini, R.F. (1992), "Exploring the Effectiveness of Business Gifts: A Controlled Field Experiment", Journal of the Academy of Marketing Science, Winter, pp. 87-91.

Cooper,M. J., Madden, C. S., Hunt, J. B.,& Cornell, J. E.(1991). Specialty advertising
as a tool for building goodwill: Experimental evidence and research implications. Journal of Promotions Management, 1, Pg 41–54

Gordon, K., Maiko, M. (2001), Business Approaches to Combating Bribery: A Study of Codes of Conduct, Journal of Business Ethics, December, Vol 34, Issue 3 & 4, Pg 161

Greaves, S. (2001), How Corporate Gifts Add Value to Firms, Marketing, Oct 4, Pg 33

Kanter, J.(2008), 20% of buyers have been offered bribes by suppliers; Supply Management; Vol 13, Issue 9, Pg 11

Lucas, A. (1995), When Gift Giving Goes Too Far, Sales & Marketing Management, June, Vol 147 Issue 6, Pg 15

Lynn, J.(2000), Holiday Gift Giving: Navigating the Minefield of Holiday Gift Practises, Commercial Law Bulletin, Sept/Oct, Pg 36.

Shama, A. and Thompson, K.J. (1989), "Gifts Build Goodwill and Market Share", Journal of Retail Banking, Vol. 11, Summer, pp. 55-9.

Trawick, I. F., Swan, J. E., & Rink, D. (1989). Industrial buyer evaluation of the ethics of salesperson gift giving; value of the gift and customer vs. prospect status. Journal of Selling and Sales Management, Vol. 9, 31–37

TIME (1965), The Business of Giving, Dec 17.

1. Joel on Software Accessed on 18th July 2008
2. What’s Next Blog Accessed on 18th July 2008
3. I Started Something Accessed on 18th July 2008
4. Scobleizer Accessed on 18th July 2008
5. POP! PR Accessed on 18th July 2008
6. Marketing Pilgrim Accessed on 18th July 2008

Wolseley Corporate Website Accessed on 18th July 2008
Australian IT News,24897,20986786-15306,00.html Accessed on 18th of July 2008

Saturday, October 18, 2008

A New 100 Days

I noticed this on a cheap poster hung in a Calcutta eatery: Today is the first day of the rest of my life.

Very profound thought indeed. Incidentally, my 100 day project came to an end - without discernible results, though I may say that my thoughts and ideas changed quite a bit. However, the crisis worldwide submerged whatever little I achieved, and at the end of it, I was left insecure and confused, rather than strong and certain.

However, it's me - if first 100 days did not solve the problem, I am certain the next 100 days will. I loved fashioning my life around 100 days - as meaningful/meaningless a construct as corporate quarters, around which much of my life has revolved. As every quarter must be better than the other, I need to promise to my stakeholders - my family and friends and myself and all others who interact or transact with me - that the next 100 days would improve my 'deliverables' significantly.

I quite enjoyed keeping a tab on my progress on this blog. I must admit I was less than frequent, and as travel intervened, I hardly updated the diary or reported progress. At the hindsight, that was okay - now that I know that many people kept reading what I was posting, not out of human interest [as I hoped it to be], but also to track my thoughts and even to use them sometimes to undermine my efforts. While this thought is daunting - being watched by a big brother with less-than-pure intent - it is interesting too, full of possibilities. Living life as transparently as possible is always attractive [I am not a voyeur, just honest], and I thought transparency is indeed the best way to deal with moralism and instant judgements. So, even after arguing against it, I decided to keep a diary, publicly, for my next 100 day project.

I start this project - let's count today as Day 0 - in the middle of a chaos. The world's economic woes are refusing to go away. This affected me personally and professionally, but increasingly, I am seeing that the opportunities are opening up. Not that my detractors are going away and things are turning rosy, but bad times invariably has a seed of a good time inside it. So, if I was gloomy and introspective in the middle of the economic boom, I am becoming cheerful and positive in the middle of a downturn.

Not that I am making money, or I have a lot. On the contrary, I have nothing. The fun of having nothing is one does not have much to lose. In fact, I don't owe much, which is good. I can now climb on the positive borrowing cycle - borrow at bad times and pay back at good times - rather than the reverse. I always thought bad times are wonderful opportunities of starting new businesses, provided one is careful enough and watches it all the time.

This positive, glass-half-full feeling, allows me to set a new set of objectives now. The experiences of past 100 days have taught me a lot - including the wait for the visa to be renewed, my half-hearted attempt to resume my studies and my 30-day change-the-agenda travel to India - and it is time to put this in action.

Let's start with work. I realized I was trying to work too hard, achieve too much and was not communicating well. The agenda for the next 100 days will be to calm down, focus on the basics and restore the communication. All of this is doable, and I am upbeat about the prospects of what we have. However, with all of what I have on my plate, I need to work smarter, better and be less stressed. This is exactly what I am going to do.

Also, another important lesson I learnt is to focus on money. I never did. This possibly came from my cultural upbringing - the true Kolkatawala 'rejection of greed' - and my political education. Money isn't an object, I believed. Why save, I asked others, when your savings are actually being spent by George W Bush to bail out banks and finance his unjust wars. What I missed is that my executive responsibility is to make money, even if I have contempt for it at my heart. Besides, money is the measure of success in the modern world, and however flawed that measure may be, I must play ball and 'prove' myself before others start listening to what I have to say. So, yes, I have decided to play ball.

But, also, at the same time, I realize that I am spending too much time thinking about work, and sacrificing everything else. There are things which I really want to do - a non-profit work is sounding particularly inviting - and I must find time to pursue this more seriously. I think this is precisely what I have not been doing properly - pacing myself and balancing different priorities right - and this is something which I need to set right.

Also, as I mentioned, downturns are great times to start a new business, provided one knows what he is doing. My visits to India and Philippines have opened my eyes - quite literally - to the opportunities, regarding various areas which a small internationally-dispersed business can make a tremendous difference. And, yes, I hasten to add, can make money.

So, that's more or less going to be the next 100 days. Transcending my past, shall I say, and examining the beliefs I held blindly, and trying to live life differently. Except one belief: If I fail, the journey will still be worth it.

Friday, October 17, 2008

Indian Renaissance

I am reading Sanjeev Sanyal's Indian Renaissance - a fine book, as I have noted earlier. On the second reading, its principal thesis is becoming clearer to me, and I have started to disagree.

The principal thesis of the book is how Indian civilization went into a decline for about a thousand years, before turning a corner again in the nineteenth century Bengal, and finally coming into full bloom again after 1991, on the wake of Manmohan Singh's liberalization efforts. The author maintains that the civilizational decline was accentuated by a 'closed' approach to innovation, change and new ideas. And, all of this came back in fashion after 1991 - when Indian entrepreneurs were unleashed on the world. And, that started an Indian renaissance.

However interesting this formulation may sound, the timeline mentioned here are bound to raise eyebrows. This sounds too familiar - in line with Hindu Nationalist thinking of a golden Indian past, followed on by a dark age under Islamic domination. The concept of a Hindu civilization - open to new ideas, allowing infinite social mobility, entrepreneurship and innovation - is also old, but possibly flawed. Not only social mobility got severely limited by the caste system in the late vedic age, and stories of persecution and repression of the lower castes and later, Budhdhists, abound. While it is plausible that India did contribute more than 30% of the world's GDP in AD 1 [against China's 26% and Roman Empire's 21%] and undeniably Indian universities excelled in their intellectual leadership, it is difficult to imagine an open society - of ideas and innovation - in the pre-Islam India.

It is, further, harder to accept the thesis about India's decline. The author blames it on the inward-looking, insular culture that took hold after, more or less, the Islamic invasion. Here, the Indian civilization is made synonymous with Hindu civilization, and a broad generalization of history was made. While India's 'share' in World's GDP may have declined, but India's GDP did indeed go up significantly. Between AD 1000 and AD 1820, Mr. Sanyal quotes Angus Maddison, India's share of World's GDP went down from 29% to 16% [and by 1947, it fell to 4%], but this happened in the backdrop of a great Chinese expansion and post-Roman Empire consolidation of European states. The author here blames this 'relative' decline on India's attitude towards technology and new ideas, though the Muslim emperors of India greatly expanded their empire, promoted scholarship and invested in building cities and military infrastructure.

The author's expectation of how India turned a corner is even more surprising. He believes that while a renaissance was under way since the days of Raja Rammohan Roy, the doors were finally unlocked by Manmohan Singh's economic policies in the 1990s. This allowed new ideas and openness, encouraged entrepreneurship and innovation. He expects that this will lead to a great economic and social revival of India.

The treaties will go down well in the current myths spread about India and its emergence, though it rehashes a central thesis - a golden India wasted by Muslim invaders - and therefore demonstrates the greatest threat to modern India. An interesting polemic, though written in a tired style of business plan, the book misses the point by a mile.

Here is why. Indeed, I shall accept the fact that Indian civilization declined - but I shall rather look at later Mughal era than the dawn of Islamic invasion of India. I shall repeat my favourite quote, that of Cambridge professor William Ralph Inge, "Every institution not only carries within it the seeds of its own dissolution, but prepares the way for its most hated rival". The point I shall make is that every civilization fails, unless it builds a peaceful mechanism of self-destruction and renewal within itself. While the glory of India's past is being touted, one must realize that its destruction came from within. This is all but natural, and seeing it through the prism of civilizational conflict is motivated and misleading.

Without the intention of spoiling anyone's party, my view is that any judgement about new India is still too soon to make. It is not fair to contrast a micro-event - a few budget decisions of Mr. Singh in the 1990s - against a broad historical trend, like the thousand year decline under Islamic rule. If I have to make a comparison, I shall try comparing Mr. Singh's liberalization to Sir Thomas Rowe's visits to the Emperor Jehangir, both of which can be treated as significant steps towards economic openness, hopefully with contrasting results.

Also, alluding to Mr. Sanyal's proposition that a civilization thrives on openness - towards new ideas and people - the modern, post-1990 India is no more open to India in Jehangir's time. We have brought the civilizational strife right in our middle, branding some of our citizens as aliens and refashioning our history through the prism of political convenience. The country we run today are no less elitist than Mughal India, no less exclusionary than the Brahminical times. Much of our population is excluded from any prosperity that we attained in the recent times. We fear all foreigners and their ideas, and increasingly, that fear is fashionable. Innovation, entrepreneurship and freedom - the key drivers of a dynamic civilization - do not thrive in this setting.

Wednesday, October 15, 2008

Back from India

I am on my way back from India - after a rather extended, almost 4 weeks trip. I am now quite used to write the blog posts from the Emirates Lounge in Dubai, as I am doing now, and know exactly which seats get a good wi-fi reception. I am no longer hungry for lounge food, and rather tired of my travelling routine. But, there is another thing new - I felt at home in Calcutta, after many years.

This is new. I always go to Calcutta with the expectation of going home, but come back to disappointments. It is just the gap between perception and reality, the abstract notion of home and the actual comforts and habits one carries with him. As I know now, home is not a place but a habit, or expectation of habits, and everytime I go to Calcutta, I find the great disconnect over and over again.

This time, indeed, was no different. While I was travelling, the whole drama of Tatas exiting Singur was played out. Bengalis fighting bengalis to eventual loss to all isn't something new, and it happened again. There was a bit of disbelief on the air - about the exit, about the consequences. It felt unreal that such a hope was dashed. And, the political parties continued their game of denial - Ms. Banerjee continued her desparate search for 'issues' and CPIM took credit of letting Tatas go and not allowing Mamta a political platform. And, life went on a slow motion.

It was no different at work, too. I was confronted by the usual lack of imagination, the dire desparation of Calcutta businessmen to live on crumbs, trading margins. I met Bank Managers who wants to hoard money, civil servants who want to rule, and academicians who would rather have more holidays than teaching hours. I walked on the streets - a first in a few years - and realized a fact: It isn't the desparate poverty which is revolting about India, it is the sheer indifference to poverty which other people display.

But, also, at the same time, I confronted racism for the first time. Of course, I get treated as a Second Class Citizen, a refugee and a terrorist every day in England, but I have gotten over it. I have reasoned that it is only a few people who do not know about the world [even if that includes the administration] and time, eventually, will correct the perception.

But this time, it was different. I was face to face with a classical western disease - the inflated sense of entitlement that westerners carry. Yes, I can sure reason that it is few bad apples yet again. But, this is real and close to home - when someone quite obviously believes that being white means that s/he should be treated differently from everyone else. I have not faced this yet - the tightly contracted jobs in England are so different from the cross-cultural setting that I got to handle, and so little understood - and this is going to be one of the key learnings that I shall achieve.

And, this is why I suddenly feel home. At ease with the village boy who was sitting next to me at the aircraft and was coming to Dubai perhaps for a construction job. He could not speak English, and was uncomfortable dealing with the airhostesses, and even me. He was clumsy, and ill-dressed.

But, today, I felt comfortable - took out a bengali book out of my bag [a first in many years, again], and knew my identity more clearly than any other time.

Saturday, October 04, 2008

Tata ta-ta!

You will say ta-ta in India when someone leaves. I don't know this is meant to wish good luck. I don't know how this originated. But suddenly, it seems to have become an irony, for Bengal.

Tatas finally announced they are leaving West Bengal. One can't blame them - this isn't an ordinary project, where long drawn-out negotiations can be done. They have to produce a car within time and within a set cost. And, though this isn't necessary known in West Bengal, rest of the world treats time as money too.

This, ironically, also comes just before the 'puja', the time when all bengalis all over the world celebrates. This is the celebration of home-coming. Unfortunately, this time, the celebration will be dominated by the thought of this departure, and its implications of Bengal's economic future.

Of course, going by pure economic logic, nothing should happen. Ratan Tata does not have any love for Bengal. He decided to open the factory here for perceived economic benefits. If such benefits are available in future, investments will happen in Bengal and the industry will come.

Of course, the industry-friendly branding thing takes a hit. This morning, an Irish businessman sitting in a Manila hotel asked me about this. Bad news travels fast, indeed! Next time, he is to make an investment, he will refer back to what he saw on TV today. It will take an extra incentive to win him back.

This whole affair centred around one personality. Ms Banerjee was the great hope for industry-friendly bengalis in Kolkata. I hope they have now realized that she is one big mistake! She has shown her true colours - opportunism and directionlessness. I am hoping that she will now get her redundancy package too, along with the other 4000 people who will lose their job.

The government also proved to be ineffective. Theocratic, shall I say, as most communist governments are. They suffered from a failure of imagination, and a failure of will. The leadership was exposed to be unsure and indecisive. Well past their time - it must be observed.

Along with the Chief Minister and Ms. Banerjee, the other person who should lose his job on this fiasco is the state's governor, Mr. Gopal Krishna Gandhi. He unnecessarily meddled in the affair without any proper influence and solved nothing. All he did is to give some currency to a politician well past her sell-by date. He can argue it is a well-intentioned attempt, but if he did not know what he can go for, he does not deserve to be retained as Governor.

Tata leaving will only make a temporary dent, and not be permanent. Dashed hopes, broken hearts will take time to heal, but industrialists are much less emotional. In fact, I shall not be surprised if someone is negotiating to take over the industrial wasteland at this very time.

However, if Ms Banerjee does not leave - NOW - it will make a far-reaching damage to Bengal. If we leave an indecisive and unwilling CPIM in charge, that will set the state back decades. Almost everyone knows this - and it is Obama-time for Bengal.

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