Redefining the reform agenda – 10 point some one

(Sum's take on Indian Reforms scenario)

On the eve on Independence Day in 2008 lets conduct a post mortem of the status of Indian Reforms and develop a 10-point agenda for reforms in different sectors of India Inc. Its not about “What”, its about “How”? Here are 10 reform issues which are pending and which could raise growth as well as make it more inclusive and comprehensive.

1. Disinvestments
Never heard about the Disinvestments ministry in Manmohan’s Tenure. With the departure of comrades Disinvestments seems to be the buzz word and lowering government stake below 50 % will help PSU’s operate more freely and will help government coffers in the medium and long terms. I strongly feel that in a modern economy, government should keep itself to governing and concentrate on social and economic infrastructure; it should abstain from running businesses. Government has lined up a number of companies for Disinvestments, but sluggish stock markets and resistance from employee unions may delay / derail the process. It’s time for PC/MS combine to add steam to the process.

2. Urban Development

Some one just mentioned that our congested and crowded cities are first developed and then a master plan prepared to redesign, redevelop and reconstruct. Sluggish and unplanned urban development is the biggest dampener in slow infrastructure development and a big constraint on GDP growth. Villages are flocking to cities and cities are crumbling under pressure on resources. A major thrust on sound urban planning and development through a comprehensive policy with a sound delivery mechanism could add 1 % to GDP.

3. Highways

Highways are the face of any country and the arteries of growth for the economy. They have a transformational role both for development and growth. While China can think, plan and execute a road to Everest base in months, the case o building a simple road or flyover in India can rake years. The development of highways is moving at a slow speed; far slower than the country can afford. Problem here is not lack of resources, but lack of a comprehensive long term planning and I.M.P.L.E.M.E.N.T.A.T.I.O.N. Land acquisition reforms and push for faster highway construction does well for India.

4. Power
The biggest and best example of reforms in power sector is the Power Generation and Distribution Boards in West Bengal. Without giving any chance to the politically and reform sensitive people of Bengal, it has transformed itself into a profitable enterprise, simply by plugging holes in service delivery mechanism. My peers in Punjab are reeling with power cuts of more than 8-10 hours a day. Ironically, each successive government in Punjab is doing vote bank politics by giving free power to farmers. What about common man, who is made to pay for this? Besides power sector reforms back by a sound policy and unbundling of state electricity boards, I advocate the concept of “Pre Paid Power” where a consumer can buy certain units of assured electricity for a amount paid in advance. The power boards kitty will swell with cash from advances from rich and famous, this buffer can they be used to pay the dues and explore alternate sources of energy.

Another important aspect to highlight here is the use of diesel and other products by consumers for generating electricity through their gensets. The diesel, petrol, kerosene and LPG which government is already subsidizing, is being increasingly used for power generation in areas with heavy load shedding and power cuts. Another case of oil subsidies being misutilized ?

India with its unique location and see on three sides can actively explore setting up coastal wind energy parks (like the ones set up by Holland) and generating power from tidal waves. Wind energy potential is so huge that it, if effectively explored and utilized it can provide power to the entire peninsular region of India. Nuclear power will relieve India of its power woes in the long run.

5. Water

Clean, pure and safe drinking water is only found branded and bottled in India. The quality of drinking water ranks lower than many underdeveloped countries. Water conservation methods like rainwater harvesting, re treating the water and other water management methods are essential and critical to quality of life.

India is a land with a lot of river, and at any given time we can have flood and draught in different regions at the same time in India. Interlinking on rivers (though a costly proposition costing around Rs.100, 000 Crores) is a measure, which should be thoughtfully considered to solve the problem of water and it, can also contribute to generation of hydroelectric power.

A big slap on our face remains the high levels of pollution in our sacred and religiously important rivers (forget ecological importance) – Ganga, Yamuna and Narmada. Anyone listening?

6. Sanitation

It’s a major issue in urban, semi urban and rural India. It is imperative to build basic sanitation infrastructure (clean construction and maintenance arrangements) across India through PPP model.

Manual scavenging of human fasces is one the dirtiest job still prevalent in rural and semi urban India and must be done away with. (Already written a blog about this)

7. Housing

Housing is a national priority, but we are talking of economic housing in the millions of provide shelter, enhance quality of life and to provide security and stability and not of lavish up market accommodation running in Crores. To reduce disparity we need to develop housing projects, which discount the high land prices and provide accommodation to the weak and lower middle class of the society. This is as important as providing rural employment guarantee program and needs to be taken up at a national level. All private housing projects must have provision for low cost housing as a condition of their project approval.

8. Transport

Rail, road, water and air; all forms of transport needs to be reformed. Rail – Laloo has done a lot in terms of bringing the railways in green once again and generating reserved, but he now need to take it to the next level but means to taking up bullet trains concept between major cities like Delhi and Mumbai, Bangalore and Chennai, Bangalore and Mumbai etc. Dedicated freight corridors, expanding the rail network in northeast and the state of J & K should be taken up on a priority basis. The phenomenal success of Delhi Metro should be replicated and DMCL should be made the apex body for supervising and monitoring the progress of all Metro Projects in the country. There need to be urgency for developing Metro Projects in all cities with population in excess of 8-10 Lacs.

Road network has grown strong, but its still poor in states like UP, Bihar, Orissa and some parts of North East. Speedy implementation of road projects and highways with a strong vision of future will help India grow at a much faster growth.

Strong public transport system will enable the government to adopt free pricing of petroleum products and bring them at par with international prices. This will ease the pollution levels in cities with lesser vehicles on road.

Water transport both inland and coastal needs attention as; India doesn’t have a single passenger cruise terminal (of international standards). Developing ports with freight handling capacity and efficiency matching international standards will provide a lot of impetus to Indian Industry due to the unique geographical location of India with regards to Far East, Middle East and Europe.

I have already written a lot about reforms needed in the air transport industry. New and latest airports need to be built at lightening fast speed. Provision needs to be made for cargo and low cost passenger terminals. India need to convert its small air strips into small airports connecting every nook and corner of the country. Small aircrafts with low maintenance and operating costs needs to be developed. Private participation of international needs to be allowed in the private domestic airlines, which are already bleeding, and badly in needs to funds. Reform is a small word for what needs to be done with Air India. Air India with its unique geographical location had lost the competitive advantage of developing into a regional hub for airlines and an attractive tourist destination all thanks to our national airlines and poor airport and tourist infrastructure.


9. Rural Infrastructure
Wider roads, medical and education facilities, low cost “kuchha” airports, cargo management centers (perishable and processed agricultural products), telecommunication and IT connectivity, better access to financial institutions are just some of the many giant leaps we need to take to strengthen our rural infrastructure and have an inclusive growth for more than 600 million people living in rural areas.

10. Food and Agriculture Sector

Specific strategies for specific products, geographical areas and a grand vision for autonomous, centralized approach and action plan to achieve another Green revolution, Blue revolution, Silver revolution and many other forms of revolutions. I strongly feel that reducing subsidies and strengthening the implementation and delivery mechanism of many rural development schemes for up gradation of agriculture sector are required. India needs to uphold and strengthen its dominance in agricultural produce in the world. Sound economics needs to be applied in determining minimum support prices for the farmers and avoiding populist measures like free electricity, loan waiver; rather “kisan” smart cards should be introduced to give them access to benefits through better access to seeds, fertilizers, electricity and other essential goods and services. Agriculture procurement and marketing needs to be revolutionized so does reduced dependence on monsoon by means of assured irrigation.

(Supplementary) Medical Sector

I include this sector as supplementary as I feel medical care is a basic facility, which needs to be made available to every citizen of this country. This is a priority sector of the economy and social infrastructure in this sector needs attention. General medical practitioners have given way to specialists in big cities. Multi specialist hospitals with advance care facilities are coming up thick and fast. The state of government civil hospitals and dispensaries has taken a beating in rural and semi urban areas. There is a shortage of advance medical facilities in these areas. Rural areas even lack basic medical and maternity facilities in some parts of India. Social security of citizens and large-scale reform of all medical facilities is urgently needed. Provision of all medical students to have compulsory rural assignments before graduating is a welcome step and it needs to be supplemented with up gradation of medical infrastructure.

(Industries, Service Sector, Financial sector, land and Labor reforms needs to be taken up in Stage II of reforms)

Role of TAAI in the Zero Percent Agency Commission Era

(Sum's take on the role of TAAI and other trade bodies in the transitionary phase from commission based revenue structure to transaction fee based structure)

TAAI should broadly accept reduction in commission to zero as a change in the structure of revenue base of travel agencies from commission based to transaction fee based. The transition phase from commission based structure to a transaction fee based structure needs to handled and put into action based on a clear cut plan so that it does not affect the travel trade adversely.

A mechanism for the implementation needs to be worked out with airlines for this transition which involves a realistic and structured time frame and educating / training the travel agents to take up such changes

The following points needs to be addressed immediately

1. Airlines should participate in discussions with TAAI to develop a mechanism of change which involves a realistic time frame. (It should be different and extended from the one which is now set by the arbitrary decision of some airlines including Air India)

2. The structure of the new revenue base for the agents (transaction fee) needs to be worked out in detail with the airlines and a consensus arrived at with regard to the percentage of the transaction fee and its features which include answering the following questions:

a. % age of transaction fee
b. How it is to be shown on the ticket
c. How will airline charge the transaction fee in case of direct selling from its offices/ website
d. The role of airlines in direct selling and not undercutting travel agency fares

3. For the implementation part of the structure and to help travel agents across India cope with change in Business Models the following steps needs to be taken:

a. TAAI should get a detailed research done and project report developed by any of the leading Consultancy firm like PWC, McKenzie to help the trade body understand how such a transition in revenue base was handled in other markets and answer the following questions:

i. How the other markets handled such transition
ii. How will such transition affect the industry
iii. How can travel trade develop alternate business models / change in existing business models to accommodate such change in revenue base
iv. How can the TAAI as a trade body increase the acceptance and adaptability of this transition among the agents across India
v. How can TAAI and travel agents continue to work with airlines and agents increase their bargaining capacity with the airlines
vi. How can the travel agents retain their existing business
vii. How do travel agents compete with airlines (in case of direct selling by the airlines)

Such a research and project handled by a professional consultancy firm will give us an outsider’s view of the agency and how agents across the world handled such changes.

4. Cooperation / Interaction with travel trade bodies in other countries/ continents like ASTA in Australia and TIA in US to understand how they handled the transition from commission based structure to transaction fee based system. Following points can be discussed with them:

a. How change in commission structure handled by them
b. How have the travel agencies been affected by such change
c. How have they developed their business models to accommodate such changes
d. How has the transition as a industry been in light of these changes
e. How has the bargaining and relationship with airlines been affected

A broad based cooperation agreement is worked out with them and efforts made to form a global alliance of different travel trade bodies in the world that provide a global platform for discussing and research on common and specific issues concerning this trade.

5. TAAI should intensify its stir against the airlines which are non- cooperating and who are taking decisions affecting the travel trade in an arbitrary manner. Air India for instance made an arbitrary decision to cut the agency commission without an open discussion with TAAI. Trade bodies like TAAI should come up with circulars to all its members to blacklist such airlines and resort to “Gandhigiri” protest. For instance to protest Air India arbitrary decision making the TAAI should instruct its members to write “ISSUED UNDER PROTEST” on all Air India tickets by its members. The agents should also be advised to cut down on sales on such airlines. Airlines that are cooperating with TAAI and travel agents should be given preference and resultant circulars should be issued commending and recognizing these airlines to all its members.

6. TAAI should form a committee with airlines participation that is entrusted with the task of interacting with the agents at the local level (one committee with four teams for each region which should visit each state and its headquarters) to educate them on the transition from commission based structure to transaction fee based structure and help and guide them through this transition phase. The committee such formed should help agents develop / change their business plans and conduct an open house to dispel all their doubts regarding this transition

7. TAAI should set up a Helpline for travel agents at the National Level wherein a counseling and help regarding this transition is provided and agent’s queries are solved.

8. Each airline should be asked to circulate among all agents a detailed informative / educative circular pertaining to this change which includes how this change was effective and did not harm the industry in other markets. It should include the suggestions / measure how airlines and travel agents continue to work together and how this transition will not adversely affect the trade

9. TAAI in association with Airlines should conduct workshops / training programs (for a fee) which would help the travel agents get trained in skills that may be essential in developing ancillary services/ alternate business models. Like a short workshop on how to sell and develop holiday package products.


10. The revenue for all the above said programs/ measure should be raised by means of sponsorships/ affiliations from the airlines.

I would again reiterate that travel agents and trade bodies should not see this transition from commission based structure to transaction fee based structure as a threat to their survival; rather we should view this as an opportunity to reduce our dependence on airlines for our revenue base and base it on the services we provide. This will not only make the trade more professional and service oriented but also give each agent an opportunity to diversify its services and products and be successful in the long run.

Recommendations to TAAI

TAAI should broadly accept reduction in commission to zero as a change in the structure of revenue base of travel agencies from commission based to transaction fee based. The transition phase from commission based structure to a transaction fee based structure needs to handled and put into action based on a clear cut plan so that it does not affect the travel trade adversely.

A mechanism for the implementation needs to be worked out with airlines for this transition which involves a realistic and structured time frame and educating / training the travel agents to take up such changes

The following points needs to be addressed immediately

1. Airlines should participate in discussions with TAAI to develop a mechanism of change which involves a realistic time frame. (It should be different and extended from the one which is now set by the arbitrary decision of some airlines including Air India)

2. The structure of the new revenue base for the agents (transaction fee) needs to be worked out in detail with the airlines and a consensus arrived at with regard to the percentage of the transaction fee and its features which include answering the following questions:

a. % age of transaction fee
b. How it is to be shown on the ticket
c. How will airline charge the transaction fee in case of direct selling from its offices/ website
d. The role of airlines in direct selling and not undercutting travel agency fares

3. For the implementation part of the structure and to help travel agents across India cope with change in Business Models the following steps needs to be taken:

a. TAAI should get a detailed research done and project report developed by any of the leading Consultancy firm like PWC, McKenzie to help the trade body understand how such a transition in revenue base was handled in other markets and answer the following questions:
i. How the other markets handled such transition
ii. How will such transition affect the industry
iii. How can travel trade develop alternate business models / change in existing business models to accommodate such change in revenue base
iv. How can the TAAI as a trade body increase the acceptance and adaptability of this transition among the agents across India
v. How can TAAI and travel agents continue to work with airlines and agents increase their bargaining capacity with the airlines
vi. How can the travel agents retain their existing business
vii. How do travel agents compete with airlines (in case of direct selling by the airlines)

Such a research and project handled by a professional consultancy firm will give us an outsider’s view of the agency and how agents across the world handled such changes.

4. Cooperation / Interaction with travel trade bodies in other countries/ continents like ASTA in Australia and TIA in US to understand how they handled the transition from commission based structure to transaction fee based system. Following points can be discussed with them:
a. How change in commission structure handled by them
b. How have the travel agencies been affected by such change
c. How have they developed their business models to accommodate such changes
d. How has the transition as a industry been in light of these changes
e. How has the bargaining and relationship with airlines been affected

A broad based cooperation agreement is worked out with them and efforts made to form a global alliance of different travel trade bodies in the world that provide a global platform for discussing and research on common and specific issues concerning this trade.

5. TAAI should intensify its stir against the airlines which are non- cooperating and who are taking decisions affecting the travel trade in an arbitrary manner. Air India for instance made an arbitrary decision to cut the agency commission without an open discussion with TAAI. Trade bodies like TAAI should come up with circulars to all its members to blacklist such airlines and resort to “Gandhigiri” protest. For instance to protest Air India arbitrary decision making the TAAI should instruct its members to write “ISSUED UNDER PROTEST” on all Air India tickets by its members. The agents should also be advised to cut down on sales on such airlines. Airlines that are cooperating with TAAI and travel agents should be given preference and resultant circulars should be issued commending and recognizing these airlines to all its members.
6. TAAI should form a committee with airlines participation that is entrusted with the task of interacting with the agents at the local level (one committee with four teams for each region which should visit each state and its headquarters) to educate them on the transition from commission based structure to transaction fee based structure and help and guide them through this transition phase. The committee such formed should help agents develop / change their business plans and conduct an open house to dispel all their doubts regarding this transition
7. TAAI should set up a Helpline for travel agents at the National Level wherein a counseling and help regarding this transition is provided and agent’s queries are solved.
8. Each airline should be asked to circulate among all agents a detailed informative / educative circular pertaining to this change which includes how this change was effective and did not harm the industry in other markets. It should include the suggestions / measure how airlines and travel agents continue to work together and how this transition will not adversely affect the trade
9. TAAI in association with Airlines should conduct workshops / training programs (for a fee) which would help the travel agents get trained in skills that may be essential in developing ancillary services/ alternate business models. Like a short workshop on how to sell and develop holiday package products.
10. The revenue for all the above said programs/ measure should be raised by means of sponsorships/ affiliations from the airlines.

I would again reiterate that travel agents and trade bodies should not see this transition from commission based structure to transaction fee based structure as a threat to their survival; rather we should view this as an opportunity to reduce our dependence on airlines for our revenue base and base it on the services we provide. This will not only make the trade more professional and service oriented but also give each agent an opportunity to diversify its services and products and be successful in the long run.

India @ Beijing - Raping 1 Billion Aspirations

(Sum's angry on the poor look and feel of Indian Contingent at Beijing Olympics opening ceremony parade)

I consider myself to be the biggest fan of India (at any sport) and I cheer for my country at sporting events even when I know India in competing for the last three spots. But the sorry picture of Indian contingent at the opening ceremony of the Beijing Olympics has dampened my spirits for the event.

When I got back home from work, I considered myself fortunate for not missing the Indian contingent at the Olympic Sports opening parade. The grandeur of the event made me glued to the TV, sitting on the edge of my seat waiting for the arrival of “India”.

Meanwhile it was a treat watching other contingents in their national attires and I very proudly said to my Mom (I literally forced her to watch the event with me, as I told her anytime Indian Contingent would arrive in the parade) that the Best & the Most Exotic Dressed Contingent would be from India. As the contingents arrived from countries like Honduras, Kenya, Fiji, Japan, Spain immaculately dressed in their national attires and carrying loads of confidence on their faces my anxiety just grew. I was almost like a cheer girl from within waiting for my team to come.

As “India” was announced with a Chinese accent and the pictures of Indian Contingent flashed on the screen, it brought a sarcastic smile on my Mom’s face, as if she beat me to a game even without playing. I was crushed under my expectations looking at a small contingent represent ting a nation of 1 Billion dreams and aspirations (including mine). The men were dressed plainly in Sherwanis and the female were dressed as per their will. It was almost as if urban Indian female representing Youngistan were dressed in their ‘Hip” track suits and the traditional female athletes from small cities and rural background were wearing the traditional Saris. The contingent was clearly looking lost devoid of any confidence and the ladies looked as if they came out of a Saas Bahu soap opera, wearing different theme attires.

It must have been a big embarrassment for Sonia (Sonia not Sania…Sonia Gandhi Ji, I mean) waving at a small contingent with the female athletes heterogeneously dressed. To cover up I just told my Mom that actually Sania and Sunita are dressed in their tracks as they didn’t know how to tie an Indian Saari. But I was torn to pieces from within (the cheerleader in me was raped by the female Indian athletes) , and this is no exaggeration. India has lost the Olympics even without a ball being bowled. It is yet another case of India failing to rise at the world arena - "A Case of Lost Business Opportunity" in business parlance.

China showed it is made of stell and spent some USD 67 billion to showcase its rising status in the world arena and stamped it authority with dominance as a rising global powerhouse. Rise as a country not only means consitent growth in GDP figures, but it means much more to the people of the country including strengthening of socia-cultural infrastructure and sports is an important element of it.

I would give newspapers and TV a miss for the next fortnight fearing another nightmearish performance by Indians. Its the goof ups off field which put me off rather than loosing on the field with compretetive spirit. As I write this just heard "PMO intervened in Monika's case" and "Monika to go to Beijing", gggggrrrrrrrrrhhhhhhhhhhhh, what's going on India ? Politics in sports or Politics as a sport.

I stand for "Politics" to be included as a sport in next "Olympics" , for that is the only chance for India to strike Gold at this event.

India's Economy Turning Sour

(A world's perspective of Indian Economy - Economists View)

INDIA’S coalition government went to outlandish lengths to win a vote of confidence in Parliament on July 22nd, a victory it hopes will prolong its life until early next year. To appease one politician, it even renamed the airport in Lucknow, a state capital, after his father. (The ingrate still voted the other way.) Asked to justify this ploy, India’s finance minister dryly remarked, “It will facilitate better take-offs and landings.” Now he and his fellow reformers must facilitate a safe landing for India’s economy. It too may go the other way.

Until the start of this fiscal year (which began on April 1st), India’s economy had its head in the clouds. Having grown by at least 9% a year for three years, it was attracting more overseas capital than it knew what to do with. Foreigners ventured a net $20 billion on its booming stockmarket last fiscal year; overseas banks lent even more to its mighty companies.

But India’s share prices were collapsing and its economy slowing even before July 29th, when the central bank stepped up its campaign against inflation by hiking its benchmark “repo” rate for the third time in less than two months (see chart). Industrial production expanded by only 3.8% in the year to May. The figures for capital goods and infrastructure industries, such as steel, cement and electricity, were particularly dismal for a country that prides itself on having an investment boom.

A big gap has now opened up between the increasingly gloomy views of India’s prospects from abroad, and the defiant optimism of its own forecasters. The Centre for Monitoring [the] Indian Economy, in Mumbai, thinks India will still grow by 9.5% this fiscal year. JPMorgan, a foreign bank, foresees growth of just 7%. imponderable is the oil price. Though prices have eased on world markets, India still faces an import bill for crude that may reach $120 billion this fiscal year, compared with $69 billion the year before. The extra burden is about 4% of GDP—a huge amount. The Congress-led government, which must go to the polls before May, is reluctant to pass on the full cost to voters. When it raised pump prices in June, the opposition described this as an “act of economic terrorism”.

But by sparing households, it is jeopardising the public finances. Between them, the fuel subsidy, cheap fertiliser, forgiven farm loans and fatter pay-packets for bureaucrats, could increase the budget deficit to 10% of GDP this fiscal year, if the red ink spilled by state governments is included.

When you combine government largesse with the oil bill, you get an external deficit which could reach 4% of GDP this fiscal year. Narrowing that gap is a matter of urgency. The foreign capital needed to bridge it is now less forthcoming. The threat to India’s exchange rate is plain.

It would be too sensational to talk of a run on the rupee. India is not a debtor nation: its foreign assets—including more than $300 billion of foreign-exchange reserves—outweigh its foreign debts. Moreover, the foreign investors with direct stakes in India’s growth will not liquidate their back offices or assembly lines just because of a bit of cyclical gloom.

More fickle, however, are the foreigners who bet large sums on Indian shares when the stockmarket was in full bloom. They are deserting the country, withdrawing $6.7 billion so far in 2008. The only consolation is that as share prices fall, so does the amount they can repatriate, relieving some of the pressure on the currency.

Two modest reforms, pending in Parliament, might restore some of India’s charms to foreigners even before the next election. Both are designed to encourage outside investment in the financial sector. One would raise the cap which limits foreign direct investment in insurance. The other would give foreigners who invest in Indian banks voting rights commensurate with their stakes. But India must learn to cope without an inrush of foreign money. That may entail slower investment and a narrower fiscal gap. In particular, the government, having won its confidence vote and prolonged its life, cannot now afford to wait until after the next election before again raising fuel prices.

Neither epic nor tragedy

Even as they dump shares, India’s foreign investors should also take stock. They were wrong to count on a 9-10% rate of growth. Such a rate could be sustained only with a furious pace of economic reform, which India’s mutinous democracy cannot provide. Any projection that relies on the wholesale unshackling of the market for labour, land or electricity would therefore be about as useful as the astrological projections that convinced India’s opposition leader he would triumph in the no-confidence vote.

But India also benefits from what financial types might call the “democracy put”: its politics forestall the worst outcomes, even if they squander the best. India’s policymakers only seem able to reform under duress. They accomplish little during good times but have plenty of rabbits left in the hat when darker times loom. For example, India is still a lightly taxed country, and the proposed introduction of a nationwide tax on goods and services could add three percentage points to the taxman’s share of GDP. Likewise, the government still owns hundreds of enterprises. It may not have time to flog much of this patrimony before it goes to the polls. But it could prepare the ground for a sale soon after.

In the past few years, foreigners have enjoyed reciting the “India story”, the epic tale of a youthful nation throwing off its shackles to fulfil its destiny as an economic superpower. Indians enjoyed telling the story back to them, with justifiable pride and perhaps a little masala (ie, embellishment). That story is not all myth: in the past few years, India’s sustainable rate of growth has increased from less than 6% to somewhere close to 8%. But as recent events show, the India story often resembles a comedy as much as an epic. Its policymakers run around in circles, swapping partners and scandalising onlookers, but with luck pull it together at the end

The Case of "Ambush Marketing" in Sports (Economist's view)

TAKING your hat off at the door may seem like a throwback to a more genteel age. But the practice lives on at modern sporting events. Dutch buyers of Heineken beer were given green hats to wear to the recent Euro 2008 football tournament. Anyone who tried to enter a stadium wearing one, however, as many fans did in 2004, was asked to remove it. The hats were an “ambush marketing” campaign, in which companies try to promote their brands at sporting events without paying sponsorship fees. Heineken’s rival, Carlsberg, was an official sponsor of Euro 2008, paying $21m for the privilege. A few TV close-ups of fans wearing Heineken hats would have cost very little by comparison. This was just one of 18 examples of ambush marketing at Euro 2008 identified by researchers at Coventry University Business School.

Ambush marketers have replaced hooligans as the villains of sporting events, because they undermine official sponsors, which are the main source of revenue in some sports. The stakes are highest at the Olympics. This year 12 firms, including Coca-Cola, Samsung and Visa, have paid a total of $866m to be official sponsors of the Beijing Olympics—and they want exclusivity.

The Chinese authorities have responded with their usual subtlety. Between July 11th and September 17th the Beijing Organising Committee for the Olympic games will take control of all prominent advertising sites in the Chinese capital, including those at train stations and airports, and their use will be limited to official sponsors only. (In 1996, when the Olympics were staged in Atlanta, the city was plastered with ads by Nike, which was not a sponsor.) Athletes will be banned from taking their own drinks into the Olympic Village to “protect sponsors’ rights”. And at each event if any spectators manage to get past the officials with unofficial food, drinks or clothing, broadcasters will be obliged to avoid showing them in close-up.

But preventing ambushes is difficult. Marketers tend to launch ambush campaigns only once an event has started, making pre-emptive strikes almost impossible. And policing the brand use of individual spectators at the stadium is tricky. Coca-Cola, which has sponsored every Olympiad since 1928, says sponsorship provides “a way to connect with people around the world at a very personal, emotional level”. But if that means depriving spectators of their half-finished Pepsi as they enter a stadium, the emotions may not be happy ones.

Overzealous enforcement can also result in bad press—as with the orange plastic Lederhosen given out by Bavaria, a Dutch brewery, to Dutch fans before a match at the 2006 football World Cup. Officials asked fans to remove the offending garments, to placate Budweiser, a rival beer brand that was the tournament’s official sponsor. Many fans ended up watching the match in their underwear, and the resulting fuss generated even more publicity for Bavaria

Aviation "facing worst downturn"

World aviation could be facing its worst-ever global downturn, figures have shown.


There is set to be a 7% fall in the number of flights offered by airlines in the last three months of this year, travel information company OAG said.


Airlines worldwide will offer 59.7 million fewer seats in October-December 2008 compared with the same period last year, OAG added.

(These are certainly scary figures....worst is yet to come in this industry)