Sunday, March 1, 2009

Protect Your Competitive Advantage!

To thrive in this global economy, one focuses on maintaining and enhancing their "competitive advantage incrementally."

Following are the two questions that you should ask yourself:
  • "What is your competitive advantage!?"
  • "How are you protecting it?"

Jiang Tai Gong book "Six Secret Teachings" emphasizes "the importance of protecting one's advantage."

King Wen asked Tai Gong:"How does one preserve the state's territory?"

Tai Gong said: "Do not estrange your relatives. Do not neglect the masses. Be concillatory and solicitous towards nearby states and control all that is under you. Do not loan the authority of state to other men. If you loan the authority of state to other men, then you will lose your authority. Do not hurt those of lower position to benefit those of higher position. Do not abandon the fundamental to save those that are inconsequential.

When the sun is at midday, you should dry things. If you grasp a knife, you must cut. If you hold an axe, you must attack."

"If at the height of the day, you do not dry things in the sun, this is termed losing the opportunity.

If you grasp a knife but do not cut anything, you will lose the moment for profits. If you hold an axe and do not attack, enemies will attack instead."

"If trickling streams are not blocked, they will become great rivers. If you do not extinguish the smallest flames, there is nothing much you can do when it turns into great flames.

If you do not eliminate the two-leaf sapling, you might have to use the axe to remove it in future."
"For this reason, the ruler must focus on developing wealth within his state. Without material wealth, he has nothing with which to spread beneficence or to bring his relatives together.

If he estranges his relatives it will be harmful. If he loses the common people, he will be defeated. "

"Do not loan sharp weapons to other men. If you loan sharp weapons to other men, you will be hurt by them and will not live out your allotted span of years."

King Wen said:"What do you mean by benevolence and righteousness?"

Tai Gong replied: "Respect the common people, unite your relatives. If you respect the common people, they will be in harmony. And if you unite your relatives, they will be happy.

This is the way to implement the essential cords of benevolence and righteousness."
"Do not allow other men to snatch away your awesomeness.

Rely on your wisdom, follow the norm. Those that submit and accord with you, treat them generously and virtuously. Those that oppose you, break with force. If you respect the people and trust, the state will be peaceful and populace submissive."

- T’ai Kung Liu-t’ao (Six Secret Teachings)

More on this topic can be found in Dr. Ralph Sawyer's Seven Military Classics of Ancient China.


When a business component is no longer cost effective and significant to the greater part of the system, there is a strong possibility that it will be outsourced.

August 12, 2008
Cost-Cutting in New York and London, a Boom in India

GURGAON, India On the top floor of a seven-story building in this dusty aspiring metropolis, Copal Partners churns out equity, fixed income and trading research for big name analysts and banks. It is a long way from the well-cooled corridors of Wall Street, and quarters are tight; business is up about 40 percent this year alone.

"This is one bulge-bracket bank," said Joel Perlman, president of Copal, pointing toward a team behind an opaque glass wall. "And this," he said, motioning across a narrow corridor "is another."

The banks edit and add to what they get from Copal, a research provider, then repackage the information under their own names as research reports, pitch books and trading recommendations.

Wall Street's losses are fast becoming India's gain. After outsourcing much of their back-office work to India, banks are now exporting data-intensive jobs from higher up the food chain to cities that cost less than New York, London and Hong Kong, either at their own offices or to third parties.

Bank executives call this shift "knowledge process outsourcing," "off-shoring" or "high-value outsourcing." It is affecting just about everyone, including Goldman Sachs, Morgan Stanley, JPMorgan, Credit Suisse and Citibank to name a few.

The jobs most affected so far are those with grueling hours, traditionally done by fresh-faced business school graduates research associates and junior bankers on deal-making teams paid in the low to mid six figures.

Cost-cutting in New York and London has already been brutal thus far this year, and there is more to come in the next few months. New York City financial firms expect to hand out some $18 billion less in pay and benefits this year than 2007, the largest one-year drop ever. Overall, United States banks will cut a total of 200,000 employees by 2009, the banking consultancy Celent said in April.

The work these bankers were doing is not necessarily going away, though. Instead, jobs are popping up in places like India and Eastern Europe, often where healthier local markets exist.

In addition to moving some lower-level banking and research positions to support bankers and analysts in New York and London, firms are shipping some of their top bankers from those cities to faster-growing developing markets to handle clients there.

Owing in part to credit weaknesses and billion-dollar charges from the subprime crisis, "people who were off-shoring high value jobs are increasing the intensity of that, and people who were not are now in the planning stage," said Andrew Power, a financial services partner at Deloitte Consulting.

Wall Street banks started cautiously sending research jobs to India a few years ago, hiring employees by the handful and running pilot programs with firms like Copal, Office Tiger, Pipal Research and Tata Consultancy Services.

In 2003, JPMorgan and Morgan Stanley said they planned to move a few dozen research jobs to Mumbai, Lehman Brothers was working on a pilot program to create research presentations in India and both Merrill Lynch and Goldman Sachs said they had not moved any research to the country.

Five years later, the trickle is a flood. Third-party firms say they are seeing a 20 to 40 percent upswing in business this year alone.

Morgan Stanley has about 500 people employed in India doing research and statistical analysis. About 100 of Goldman Sachs' 3,000 employees in Bangalore are working on investment research.

JPMorgan has 200 analysts in Mumbai working for its investment banking operations around the world, doing industry analysis, and compiling data and charts for marketing materials. It has an additional 125 analysts in Mumbai supporting the bank's global research division.

Citigroup employs about 22,000 people in India, several hundred of whom work in investment research. Deutsche Bank has 6,000 employees in India, according to the bank's Web site. Deutsche started a pilot program to outsource some research in 2003, and would not provide any update.

Theoretically, as much as 40 percent of the research-related jobs on Wall Street, tens of thousands of jobs, could be sent off-shore, said Deloitte's Mr. Power, though the reality will be less than that.

The jobs off-shore are more likely to come from the investment bank and trading divisions of Wall Street firms, rather than the sales side, which produces analyst reports about companies and industries, said Andy Kessler, a former analyst who has written several books about Wall Street.

"There's a huge amount of grunt work that has been done by $250,000-a-year Wharton M.B.A.'s," Mr. Kessler said. "Some of that stuff, it's natural to outsource it."

He added, "These are middle of the office jobs, not back office, but they're not the people on the front line."

After research, the next wave may include more sophisticated jobs like the creation of derivative products, quantitative trading models and even sales jobs from the trading floors.

Proponents of the change say Wall Street's wary embrace of the activity may signal the beginning of a profound shift in the way investment banks are structured, with everyone but the top deal makers, client representatives and the bank management permanently relocated to cheaper locales like India, the Philippines and Eastern Europe.

In the future, executives in India like to joke, the only function for highly paid bankers in New York or London will be to greet clients and shake hands when the deals close.

"Wall Street has to look at the world differently," said Manoj Jain, the chairman of Pipal Research, a 400-person firm with offices in Chicago, Delhi and Gurgaon. Moving high-value jobs out of high-cost cities is "no longer a hypothesis," he said.

Pipal has "more work than it can take" right now, he said, and is seeing new clients beyond United States banks, like investment management companies and European financial firms. Like analysts at most offshore research operations, Pipal's number crunchers do not make recommendations, or generally put their name to the research they write. Instead, they work with the big-name bank or fund analyst to create the research that they want.

Permanently moving banking jobs out of New York or London is a touchy subject on Wall Street. Many investment banks, including Morgan Stanley, Goldman Sachs, Merrill Lynch and Citigroup, would not make executives available to discuss the topic.

Press officers for most banks asked not to be quoted or argued over semantics. For example, one spokesman said his bank's fast-growing India support operations are not an outsourcing facility, but a "center of excellence"; another argued that large cost cuts at his bank's New York and London headquarters were really "re-engineering" so the bank should not be included in such an article.

"Some of that is self-serving," Octavio Marenzi, chief executive of Celent, said of the impulse to keep quiet. "If I admit that research analysts can be off-shored to India, that means that I could too."

He said the "more advanced firms" will be able to use the cost differences and talent pools in India, and in the future in China, to their advantage.

A few banks have openly embraced off-shoring. Credit Suisse has 6,500 employees around the world working in lower-cost locations in India, Poland and Singapore. Of these about 500 are doing high-value jobs.

"We have people helping the execution of deals, data gathering, helping to build financial models, writing research, and doing scenario analysis," said Vineet Nagrani, head of knowledge process outsourcing at the bank.

The bank has small teams working on fixed-income research, credit research and foreign exchange research, "all of which are going to grow" Mr. Nagrani said. Credit Suisse is also doubling the number of investment bankers and private bankers in India who deal with local clients in the next 12 months.

The bank's clients, so far, seem happy. "As long as clients get a good quality product and can talk to their favorite research analyst" they do not care if the grunt work is done in New York or India, Mr. Power said.

Third-party outsourcing firms face two hurdles when winning this business, N. Chandrasekaran, chief operating officer of Tata Consultancy Services, said. First, banks need to be confident that third parties are capable of doing the work. Second, they need to decide whether they want to move the work out of the bank at all.

To address the first issue, Tata sets up pilot programs with clients. A new Tata office in Cincinnati, which will employ 1,000 people in three years, is intended to give the company a United States presence.

In addition to growth outside India, these outsourcing experts are bringing in Chinese nationals, Arabic speakers and even the very people they are replacing: business school graduates from America.

Daniel Peng, who will be a senior at Dartmouth next year, is working in the equity research department of Copal Partners as a summer intern. "I thought it would be a good emerging markets experience," he said.

Tellingly, Mr. Peng still hopes for an old-fashioned Wall Street job when he graduates. New York would be "ideal," he said.

Copyright 2008 The New York Times Company

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