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For all the talk about companies coming to an emerging market like India and setting up shop, no one has been more passive aggressive then the Volkswagen Group. VW is most famously known for its Beetle – one of the best selling cars of all time at over 21 million units. In a bid to move beyond the Beetle, VW in the 90′s started to acquire many brands and their complete portfolio is quite impressive: Audi, Bentley, Bugatti, Lamborghini, SEAT, Skoda and VW. The VW Group also owns 49.9% of Porsche and set to take 100% ownership in the near future. The linkage between VW and Porsche goes way back, VW was founded by Ferdinand Porsche. Then Ferdinand went on to start Porsche where his son created the iconic 911. Even today the bonds are strong, the Porsche Cayenne and VW Touareg share the same chassis (platform in car speak).

Long Term Commitment
Enough of the history lesson, back to VW’s big bet on India. VW’s foray into India started in 2001 when it launched the Skoda brand and started selling the Octavia. Around 2007, the VW Group also added Audi, Bentley and VW to their Indian product line. These cars were available by importing them individually, however servicing was always an issue since they didn’t have official dealers on the ground in India. In another sign that VW is here for the long haul it opened a massive manufacturing facility in Chakan (near Pune) in 2009 and spent USD $500 million in the process. Towards the end of 2011, VW will add the high-performance brand Lamborghini to the mix. They will most likely unveil the first Lamborghini showrooms when they ship the highly anticipated fire breathing 691hp Aventador to India.

Breakout Hit
In the 4 door mid-luxury segment, the market leader for years has been the Honda City. The break out hit for VW has been the Vento which was introduced in 2010 and already has beaten the Honda City as the number 1 selling car in that segment. The Vento’s success is a combination of Honda lagging and VW bringing the right product to the market, namely a diesel engine. With petrol prices only going up VW was right to tap into the Indian psyche of affordability. The Honda City has been around since 1998 and all the brand loyalty it built up went down the drain once the Vento was launched and petrol prices started to rise. Honda hit back in early June 2011 with price cuts by attributing it to “cost reduction efforts in the supply chain” which sounded like public relations speak then reality. But it didn’t matter, by then the damage was done and the Vento took the top spot.

Audi’s Rise
Around the world Audi has always been number 3 when compared to the more well known German brands of Mercedes and BMW. However, that is changing in India partly because Audi was able to capitalize on the new designs featuring the “LED eyelids” that are now copied by every other car company. In addition, the Japanese strategy of not bringing their luxury brands of Acura, Lexus and Infiniti to India was a missed opportunity that Audi used towards its advantage. Toyota which has been in India since 1997 has built a large distribution channel and could have easily used that existing network to seamlessly introduce the Lexus brand but failed to do so. Lastly, Audi got some great mileage with their feel good advertising campaign featuring cricketer Ravi Shastri. Ravi was shown sitting on an Audi 100 on the cricket field when India won the World Championship of Cricket in 1985 where he was selected as the man of the match (most valuable player). Obviously it was unplanned and Audi capitalized on the imagery.

Market Segmentation
Possibly the only issue with the VW Group’s arrival into India is their market segmentation for their brands. When Skoda first came to India, it’s reputation in the Western European countries was not very high and thought of as a sub-standard product. However, under the VW umbrella it slowly upgraded its perception and in India it’s often thought of as a premium brand. Many consumers gravitate towards the  Skoda Superb who want luxury but want to “fly under the radar” and not appear to flashy. With the arrival of Audi and VW the lines of market segmentation have started to blur. The Audi A4, Skoda Superb and VW Passat are all very similar and in fact share the same chassis. And therein lies the problem, if a consumer wants to spend Rs. 30 lakhs on a car which one – A4, Superb or Passat?

Summary
Overall, the timing of VW’s entry into India couldn’t have been more perfect as other competitors have been busy with their own problems. The American automotive giants are dealing with their domestic demand issues. The Japanese automakers are taking a very slow approach to India when it comes to their luxury brands – Acura, Lexus and Infiniti.  Lastly, the German automakers Mercedes and BMW have been battling for the top spot for number of cars sold in India. BMW took the crown with over 6,200 cars sold in 2010, which is a very small piece of the overall Indian car market. Since the VW Group has many brands and able to target a much wider audience it will most likely lead overall sales in the years to come.

The above article was syndicated on VCCircle.com.

Mark Mobuis

Since 2005, India has been the destination of choice for institutional money mangers to invest their clients money. As a refresher, India was one of the 4 countries mentioned in the now famous 2003 report from Goldman Sachs titled “Dreaming with BRICs: The Path to 2050.”  The acronym BRIC stands for Brazil, Russia, India and China. It’s a report that many managers used as their investment thesis for entering the 4 countries mentioned and led one of the authors Roopa Purushothaman to land a gig with the largest retailer in India – The Future Group.

I’m all for research reports and believe it serves a purpose for investors that might not have a clue about certain markets and/or companies that are operate in those markets. These country reports are all very similar, they are super positive about the growth of a country and how big these markets are. However, what is really annoying is when foreign analysts, fund managers or super investors fly to India and tell Indians how their markets operate. It’s what I call “white on brown” – white guys telling brown people about their own markets.

Mark Mobius is the most recent fund manager to fall into this category. I have a lot of respect for Mark Mobius who is the emerging markets rockstar with Franklin Templeton where he oversees $50 billion in assets for them. In fact I got a chance to hear him speak in Bombay in October 2007 and was quite impressed. Recently in an interview with the Times of India he talked about his investment philosophy in India and was asked about corruption in India, he had the following view on corruption:

Corruption is rife everywhere in the world. It’s only when it really impacts the process of a business in a big way, you’ve got a problem. But that’s not the case here.

I read that quote and had to re-read it to see if he was talking about India or some other country. Mark, If you can’t speak the truth then don’t say anything but don’t insult my intelligence. Currently, India is embroiled in the largest corruption case involving one of the darling sectors for institutional fund managers – the telecom industry.

Ex-telecom minister A. Raja, industrialist Anil Ambani and heaven forbid Ratan Tata are being brought in for government questioning on how telecom licenses for the 2G mobile spectrum were allocated. If Ratan Tata who runs the Tata Group which is the largest business house in India and viewed as the most honest and above corruption is being questioned, it shows how wide the net of corruption is and it absolutely affects the process of a business in a big way. From what telecom insiders are saying the corruption is only going to get deeper and affect more individuals and companies.

Mark is correct, corruption is everywhere even in the US but happens at such a high level it doesn’t directly affect the average US citizen.  In India corruption starts at home, want to get a phone connection? want to get a gas connection? You better be ready to slip some cash to these service providers to get service or “your file” might get lost. Some say that’s not corruption but just paying for a speedier “value added service” but don’t fool yourself, the entire value chain is corrupt. I don’t fully blame Mark for his myopic view on corruption because when he visits a country like India, the red carpet is rolled out for him.  Government officials want his stamp of approval, companies want him to invest in their companies and the press wants something to print. Mark doesn’t have to really get his hands dirty when he comes to India, he gets to view everything through a rose colored lens and everything delivered on a silver platter.

Any fund manager that says corruption is not a major issue I offer you a challenge. Buy a flat in Thane and commute for 6 months to South Bombay for work.  Let’s see how you deal with the following:

• Getting your flat registered without paying a bribe
• Landline MTNL phone connection
• Gas cylinder or piped connection
• Power cuts (corrupt power grid)
• Water shortages
• Commuting by car (road infrastructure badly maintained)
• Commuting by local trains? Don’t even try it.

Staying at the Taj is not a proxy for how the majority of Indians live, work, play and learn (yes, that’s an old Cisco marketing campaign slogan).

NOTE: If you are interested in downloading the BRICs report “Dreaming with BRICs: The Path to 2050″ you can download it here.

The above article was syndicated on Huffington Post.

Recently, I ran into someone who I have met several times before and we both have a similar backgrounds in the financial markets. He told me he recently left his job and was looking for another place to work. I casually asked him why not start something instead of working for another corporate giant. His response was “he was too young”, I almost fell out of my chair and had brain freeze for a couple of minutes.  I believe I’ve heard all the excuses in the book, but this was the first time I heard that one.

I looked straight at him and said “really, ever heard of Mark Zuckerberg?” I named a couple more people and his response was “in the financial markets I’m too young to start something on my own.” At this point I figured there is no point in mentioning anyone else but I did, I asked him if you knew John Arnold, who left Enron in his early twenties and started what is now one of the larger energy trading firms in the world – Centaurus Advisors. It was pretty clear he was getting all defensive and said “he left Enron, did he cause the collapse?” At this point I just backed down and said “yeah you are right, you are too young.” Not because of his age but his immaturity.

I didn’t mention the other person I had in mind, Barry Silbert. I recently had a chance to listen to a speech he gave at Stanford (via a podcast) and he was really impressive. At 25 years old Barry left investment bank Houlihan Lokey and started selling illiquid assets using nothing more then some phones and an Excel sheet via a firm called Restricted Stock Partners. Now, his firm is one of the most recognized names because when you hear those crazy valuation numbers for Facebook, Barry’s renamed company SecondMarket is behind those transactions.  SecondMarket has become the de-facto platform for Facebook employees to unload their restricted stock options on the partially open market. SecondMarket has created a whole new market for startups that are making money but don’t want to IPO for whatever reasons they have.

Actually, I could give several more examples but there is a bigger picture here. For this young kid maybe being an entrepreneur is not for for him and sometimes I question is it meant for anyone. With all the ups and downs and the constant strain on your health, wealth, friends, etc. Most startups are usually doing 4 things: begging for business, tweaking their product, getting publicity or addressing customer issues. And, those 4 things are not very sexy but once you have achieved your goals all 4 of them make for a great story.

In most instances people feel they are above doing the “messy” work that I mentioned above, such as begging for business. Begging might be a strong word but in essence it means cold calling, going to events where customer might be or giving product demos. I know many people that are working for large companies and they are really good at their job but would absolutely die in a startup and vice versa. I need to realize it’s a choice and it’s not for everyone.

Article on Barry Silbert and SecondMarket in Bloomberg BusinessWeek (link)

The above article originally appeared on VCCircle.com.

Recently, I was invited to speak at Reliance Industries’ (RIL) corporate campus located in Navi Mumbai. It’s ironic given that our office (MProfit)  is just a couple buildings away from where Mukesh Ambani works out of – Maker IV in Nariman Point.

The topic was about personal finance and the presentation was titled “The Road to Financial Freedom.” It was a 2 hour presentation and the slides were only part of the overall presentation. Many people commented they liked the personal stories that were sprinkled through out the presentation.  The presentation will be an ongoing event at the Reliance corporate campus which has over 40,000 employees. Below is the presentation that I gave:

Last week one of the most respected CEOs in Silicon Valley, John Chambers, admitted that Cisco Systems had lost it’s path (only a true geek would recognize that pun) and was planning to do something about. I figured Cisco would take some time to make those changes and then I could write about it, but John has already started the process by scrapping the Flip camcorder division. The interwebs lit up when it was announced and most of the comments were along the lines of “who couldn’t see that coming.”

As a past employee of Cisco I think John is a stand-up guy and a VERY charismatic speaker. I would joke with people that if John told us to sell cocaine, I would because he was so persuasive. However, as a shareholder of Cisco I think John really needs to clean house and take a hard look at the direction of the company and more importantly look in the mirror.

Since John’s admission, many columns have been written about what ails Cisco. Most articles are going for the low hanging fruit such as get rid of the consumer focused product line and get back to basics with enterprise and service provider customers. But there is a much bigger issue that goes to the heart of Cisco – people.

Executive Departures
John has been around since 1991 and has had the top spot since 1995, he runs a tight ship and probably to tight of a ship. So much so, that I believe many top executives are leaving because he won’t give up the throne.  The list of departing executives include Tony Bates (left for Skype), Sue Bostrom, Judith Estrin, Charles Giancarlo, Kevin Kennedy, Don Listwin, Carl Russo, Jayshree Ullal and Mike Volpi to name a few.

Failed M&A Strategy
Cisco was once hailed for it’s inorganic growth via their M&A (mergers and acquisitions) strategy. That strategy worked early on for Cisco when it acquired companies such as Crescendo (the heart of their LAN switching platform), Kalpana, Grand Junction, StrataCom (WAN switching IGX platform) and Calista (IP phones). Most of these deals took place on Mike Volpi’s watch when he used to run the M&A group. In a Fortune Magazine article back in May 15, 2000 they called Volpi the Cisco M&A wunderkid.  Volpi had a great reputation within Cisco of being super bright and potentially could have led Cisco.

But, over the past 7-8 years that strategy has been a complete disaster with acquisitions such as Scientific Atlanta, Linksys and Pure Digital Technologies (Flip camcorder line). It appears many of the consumer focused acquisitions happened under Ned Hooper, the recent M&A head. It’s easy to say the strategy was completely flawed in hindsight, but Ned took a chance and unfortunately it didn’t work out. However, a lot of money was flushed down the toilet in running this experiment. Little known acquisitions such as Monteray Networks were shut down within a year of signing a $500 million term sheet. Internally, Cisco talked about how quickly they could integrate these new companies into the Cisco machine. Unfortunately, many founders of these companies left just as quickly and started new companies. Such as Dev Gupta who sold two companies to Cisco, Dagaz and MaxComm in 1997 and 1999 respectively.

Cisco Globalization Center East
I get annoyed every time I read an Indian business magazine and Wim Elfrink is talking about how he re-located to India to setup Cisco’s second biggest campus.  It’s a catch-22, is Cisco East something truly revolutionary? If so, then please communicate that better to the world so we can learn. If it’s not revolutionary then get over it, many large technology companies do it all the time – it’s called cost arbitrage.

In summary, John Chambers has one goal and that is to keep his shareholders happy which has not been happening. Cisco was the internet darling in the 90′s and all the way to March 25, 2000. On that day, Cisco became the largest company by market capitalization in the world at USD 579.2 billion, few companies can say that. Since then it’s a different story, if you bought Cisco in April 2001 you should have paid around USD 18.00 a share which is exactly where it is today in April 2011…over those 10 years it hit a low of USD 9.50 and a high of USD 33.00. Compare that to Apple, in April 2001 you would have paid USD 12.00 a share and now it is hovering around USD 330.00…the lure of the consumer market.