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05th – 11th September 2011
FCCISL News Alert
Weekly Business Highlight
05th – 11th September 2011
Content Page
1. DEVELOPMENT ECONOMICS
• Low-cost airlines take price war to overseas routes 04
• Big questions China still has to answer 07
• Sri Lanka Continues its Rise up Global Competitiveness
Rankings: Jumps 10 Ranks in 2011-12 World Economic Forum Report 09
• SL equities, economy fare well despite global dip- Report 13
• Empowering guardians of the parks 14
• Politicians – neither efficient nor effective 16
2. INVESTMENT
• Importance of research in stock investing 20
3. MANAGEMENT
• Job interviewing is Fine Art 24
• Nurturing internal talent, key for business continuity 27
• Utilizing time productively towards development 28
• Traffic and Road Management 30
4. TRADE & MARKETING
• On derivative clearing house, liquidity and short selling 33
5. MONEY & BANKING
• Lending, an effective consumer proposition 36
6. TOURISM
• Eco Team marks 11th year of adventure tourism in Sri Lanka 42
• Thieves thrive on domestic tourists 44
• Arugam Bay should retain its charm and character – tourists 46
7. EXPORTS & IMPORTS
• Fair demand for Low Growns 50
• Cinnamon Exports spiced up 53
• Slowdown in global supply helps NR market 54
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8. STOCK MARKET
• Market Review 57
• Colombo bourse an outperformer, says Religare 58
• Is CSE blood bath or gold mine? 60
• Tackling unexpected losses in the stock market 62
9. BUSINESS
• Getting the right strategic sequence 65
10. EMPLOYMENT
• How to snoop on employees without causing offence 69
11. CONSTRUCTION INDUSTRY
• Construction industry: focus on training is need of the hour 72
12. ICT
• The Apple phenomenon & TweetUP SL 76
• Impeccable detection? TrustPort is the way to go! 79
13. FCCISL PRINT IN MEDIA
• FCCISL announces 16th Entrepreneur Awards scheme 82
• Jaffna International Trade Fair in January 83
• Kumar Mallimaratchi becomes 17th President of FCCISL 84
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Development Economics
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Daily Mirror – September 6, 2011
Low-cost airlines take price war to overseas routes
India’s full service airlines, buffeted by high fuel costs and intense competition, face new headwinds on their
lucrative international routes as budget carriers launch services with rock-bottom fares.
With low-cost carriers launching routes using narrow-body aircraft to overseas destinations within five
hours flying time of India, full-service players are being forced to respond with similar no-frills offerings on
popular and profitable routes.
Budget airline IndiGo, which in June firmed up a $16.2 billion order for 180 single-aisle Airbus aircraft, has
received government approval to fly to Singapore, Bangkok, Dubai and Muscat, and is luring passengers
with round-trip fares as low as 9,999 rupees ($220).
By comparison, full service carriers charge between 17,000 and 22,000 rupees for economy class Mumbai-
Singapore routes booked a month in advance.
“The entry of IndiGo will help in growing the market. Low cost carriers are creating a new market with a
new breed of customers who did not fly international earlier,” said Kapil Kaul, chief executive for the Indian
subcontinent and Middle East at the Centre for Asia Pacific Aviation (CAPA).
Under the aviation laws, an airline needs to locally operate for five years before being assigned overseas
routes.
Low-cost operator SpiceJet, with just six international flights now among its 200 daily flights, plans to
expand its overseas network and has applied for several international routes, CEO Neil Mills said.
“Low cost carriers are much better poised to take advantage of the growth, because India is a very price-
sensitive market,” Mills told Reuters.
Full-service carriers Jet, Air India and Kingfisher Airlines already compete on regional international flights
with foreign full-service rivals such as Emirates, Thai Airways, Singapore Airlines and Cathay Pacific.
Low-cost carriers already flying international routes to India include Malaysia’s AirAsia as well as flydubai
and Air Arabia, both based in the United Arab Emirates. Singapore Airlines also plans a low-cost carrier.
AirAsia, which in June announced a record aircraft order worth $18.2 billion, is expected to use much of its
new fleet to link Southeast Asia to India and China.
Asia is expected to account for more than half of global airline profits this year, according to the
International Air Transport Association.
Full service, low fares
Jet Airways, India’s biggest carrier by market share, said it plans to introduce more low fare flights on
shorter international routes to take on emerging rivals such as IndiGo and SpiceJet.
“Globally the push towards low-cost is real,” said Sudheer Raghavan, chief commercial officer at Jet.
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“We will use the narrow bodied aircraft for low fare routes,” Raghavan said, referring to international routes
under five hours.
Lucrative international routes have helped Indian carriers offset often loss-making domestic routes.
Jet’s average revenue per passenger in April-June was $112 for domestic operations, compared with about
$275 for international operations, which account for more than half its revenue.
Low-cost domestic competition from Spicejet, IndiGo, and GoAir has forced full service carriers Jet and
Kingfisher to ramp-up no-frills offerings. In exchange for low fares, travelers pay for their meals, go without
perks such as seat-back video monitors, and often get less leg space.
Struggling state-run Air India, meanwhile, has slashed fares in recent months in order to arrest falling
market share, adding to price competition.
Nearly three out of four tickets Jet sells locally is in the low cost segment, while Kingfisher Airlines is
expanding domestic connectivity under its low fare brand Kingfisher Red.
Analysts now predict a pressure on international yields as well.
Bank of America Merrill Lynch, in late July, said that the profitable international segments for legacy
carriers are set to face increasing competition on economy seats from low-cost domestic and international
rivals.
“This sudden surge in LCCs (low-cost carriers) could keep the international economy yields under check,”
the bank said.
(Reuters)
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Daily Mirror – September 6, 2011
Big questions China still has to answer
By Robert Zoellick
The world’s economic leaders need to “rebalance” their thinking as well as their economies. Fiscal and
monetary policies have dominated. That makes sense to a degree: decisions on deficits, debt and the
eurozone this autumn may well determine whether the global economy slides deeper into danger, or begins
the long climb back. But these policies are insufficient for sustained growth: we need action on the structural
dynamics to generate jobs, higher productivity, and a sustainable long-term rebalancing. What happens in
China is as important as Europe, Japan, or the United States.
China’s growth has been a source of strength in the crisis, but its leaders know their growth model is
unsustainable. For 30 years, China has enjoyed average annual growth of about 10 per cent. In 1990, its
income per capita was 30 percent lower than the average for Sub-Saharan Africa – today, it is three times
greater, over $4,000. By 2030, if China reaches a per capita income of $16,000 – a reasonable possibility –
the effect on the world economy would be equivalent to adding 15 of today’s South Koreas. It is hard to see
how that expansion could be accommodated within an export and investment-led growth model, so China
will need to rebalance through boosting domestic demand, lowering savings and increasing consumption.
Middle income trap
Without fundamental structural changes, China is in danger of becoming caught in a “middle income trap” –
exacerbating the world’s growth problems. In the short term, there is the risk of inflation driven by food
prices. In the longer term, the drivers of China’s meteoric rise are waning: resources have largely shifted
from agriculture to industry; as the labour force shrinks and the population ages, there are fewer workers to
support retirees; productivity increases are declining, partly because the economy is exhausting gains from
the transfer of basic production methods. Then there are other challenges, including serious environmental
degradation; rising inequality; heavy use of energy and production of carbon; an underdeveloped service
sector and an over-reliance on foreign markets.
China’s policymakers are well aware of “what” they need to do. Their twelfth five-year plan points the way.
Their challenge now is “how” to do it. Together, China’s Development Research Centre of the State
Council, its Ministry of Finance and the World Bank are working to turn “what” into “how” for a report
later this year. Our starting point is a vision of China in 2030 as one of the high income countries, while also
protecting its environment and natural resources, encouraging creativity and innovation, and sharing
responsibilities in the global economy.
Possible reforms
This weekend in Beijing, a high-level group of Chinese and international experts will be discussing possible
reforms and how to implement them, step by step.
A critical question is how China can complete its transition to a market economy. A broad agenda needs to
include redefining the role of the government and the rule of law, expanding the private sector, promoting
competition, and deepening reforms in the land, labour, and financial markets.
To unleash human potential, China will need to accelerate the pace of open innovation, so that competition
encourages Chinese firms to invent products and processes– not only through China’s research and
development, but also by participating in global networks.
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China can “grow green” through a mix of market incentives, regulations, public and private investments,
standards, and institutional development. China also aims to deliver equality of opportunity and social
security to all its citizens. To do so, it needs to consider how best to deliver more and better quality public
services, ensure effective and efficient social safety nets, and mobilize the private and public sectors to share
responsibilities in financing, delivering, and monitoring the delivery of social services.
Fiscal system
China will weigh how to strengthen its fiscal system – bringing all public resources “on budget” and
connecting resources to different levels of government expenditures. Yet without mobilizing additional
resources, including from state-owned enterprises, it will be difficult to advance reforms. We will also
discuss how China can embrace its global role. China is already an important stakeholder in the
international system – yet a cautious one. In the future its leaders can be a key partner for global solutions.
Even while coping with today’s economic turmoil, world leaders need to design the engines of growth for
tomorrow. That agenda will also build market confidence that can provide a boost today. China’s quest to
find a sustainable growth model will contribute to other developing countries, regional and global growth,
and the stability of the international economy. China is preparing to address its challenges. Developed
countries would be wise to look ahead at their structural growth challenges too.
(The writer is World Bank President)
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The Island – September 7, 2011
Sri Lanka Continues its Rise up Global Competitiveness Rankings:
Jumps 10 Ranks in 2011-12 World Economic Forum Report
* Ranks just 2 below the Top 50
* WEF warns against complacency, biz community expectations will evolve as country develops
By Anushka Wijesinha (Research Economist) and Dilani Hirimuthugodage (Research Officer) – IPS*
The World Economic Forum released its latest Global Competitiveness Report (2011-2012), which reports
that Sri Lanka has made an impressive jump of 10 places in the rankings, to 52nd from 62nd in the 2010-
2011 report. This is a further improvement from the 2009-2010 report which ranked the country at 79th
position.
The Institute of Policy Studies of Sri
Lanka (IPS) was the Sri Lankan Partner
Institute in conducting the Executive
Opinion Survey which is a key element
in building the GCR rankings, and on
Monday the IPS received an exclusive
preview of the results via international
audio conference with the WEF
headquarters in Geneva, Switzerland. It
was noteworthy that the WEF
economists speaking to all the partner
institutes specifically mentioned Sri
Lanka as having performed strongly in
rising up the rankings, and are among
the top risers in the Asian region.
On the eve of the global release of the
report, we spoke yesterday (6th
September), directly with an official at
the WEF to get Sri Lanka-specific
perspectives on the latest report.
Thierry Geiger, Associate Director of
the WEF’s Centre for Global
Competitiveness and Performance said,
"Sri Lanka has made a remarkable
performance. When I look at the
evolution across all indicators, Sri
Lanka shows improvements on 80% of
them - 80-90 of the 110 indicators - both
in terms of scores as well as rank."
"Last year was a big jump. But you need
to be cautious of ranks. So many
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countries are ranked so close to each other. It’s important to focus on the scores. In the last GCR, Sri Lanka
improved its score by 0.24 points which we consider a big jump. This year the score improvement was not
as big as last year, but there is consistency".
Sri Lanka made the greatest
improvements in scores, year-
on-year, in the pillars of
‘macroeconomic stability’ (up by
0.48 points) and ‘infrastructure’
(up by 0.33 points). Meanwhile,
the most noteworthy decline in
scores was in the pillar of
‘labour market efficiency’ (down
by 0.11 points).
Certain pillars still sticky
Despite the strong performance, however, scores of certain indicators weakened, reflecting the business
community’s continued concern on these issues and their impact on economic activity. Geiger noted that
"Everything is on the rise in Sri Lanka except for pillars like ‘public trust in politicians’, ‘irregular
payments’, and ‘independence of the judiciary’ which have declined. The pillar of ‘red tape’ has improved
significantly from a score of 3.8 to 5.1 (rising from rank of 113 to 59). An improvement of 0.8 is seen in the
‘security’ pillar, which the WEF economist noted was "remarkable", and attributed it to the improved
climate following the end of the war.
Guarding against complacency
Some recent reformers appear to have stalled in their rise up the rankings, and this was considered
noteworthy. "What is interesting is that we are observing some stagnation among several developing Asia
economies, for example Vietnam and Indonesia. Even though they had been doing quite well on the GCR
lately, they have stagnated this year. We attribute it to growing concern among the business community
that the necessary reforms have not been made fast enough to sustain growth at high levels", Geiger said.
It appears that, in these countries, expectations have not been met and the business community is "getting
impatient". This had important implications for a country like Sri Lanka where, although improvements in
the rankings have been made it is important that policymakers and government officials do not become
complacent. Geiger remarked that, "As a country develops, expectations change, the needs evolve. If
governments don’t deliver, this creates disappointment among the business community, and this is
reflected in the scores of countries like Vietnam and Indonesia this year."
Can it be sustained?
When asked if it is likely that the recent dramatic jumps in GCR scores and rankings were mainly due to
strong positive sentiment by the business community following the end of the war and whether this was
likely to taper off in the coming years, he noted that, "it is hard to quantify the optimism. Rwanda observed
a similar situation when it came out of conflict in the 1990s. Sometimes we tend to observe overshooting
due to short term strong positive sentiment. But for Sri Lanka, it is not only the opinion survey data that
shows the improvements, hard data on the various indicators support this too. But the country must guard
against complacency".
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Asian picture
Asia’s rise to economic prominence has been accompanied by a remarkable dynamism in terms of
competitiveness. Over the past five years, several countries in the region—including China, Indonesia,
Vietnam, and Sri Lanka—have made important strides in the GCI rankings. Yet the disparities in terms of
competitiveness within the region are unique, ranging from Singapore at 2nd place to Timor-Leste at
131st. Two of the region’s largest economies, Bangladesh (108th) and Pakistan (118th), continue to rank
very low, while a number of Asian emerging economies enter the top 30.
Sri Lanka scores better than India (91st) this year too, but the WEF economist cautioned against
comparing the two. "You must keep in mind that improvements in smaller economies are easier to make".
However, he added that even among the ‘developing Asia’ country group, and even among smaller
economies, Sri Lanka does well. Table 2 provides a selected cross-country benchmarking, showing that the
country still lags behind South East Asian neighbours like Malaysia, Thailand, and Indonesia, and clearly
has some way to go to become competitive on par with these dynamic economies.
Global picture
Switzerland tops the overall rankings of the GCR, while Singapore overtakes Sweden for second position.
Northern and Western European countries dominate the top 10 with Sweden (3rd), Finland (4th),
Germany (6th), the Netherlands (7th), Denmark (8th) and the United Kingdom (10th). Japan remains the
second-ranked Asian economy at 9th place, despite falling three places since last year.
The United States continues its decline for the third year in a row, falling one more place to fifth position.
In addition to the macroeconomic vulnerabilities that continue to build, some aspects of the United States’
institutional environment continue to raise concern among business leaders, particularly related to low
public trust in politicians and concerns about government inefficiency. On a more positive note, banks and
financial institutions are rebounding for the first time since the financial crisis and are assessed as
somewhat sounder and more efficient.
Within the Eurozone, Germany maintains the lead, although it goes down one position to sixth place,
while the Netherlands (7th) improves by one position in the rankings, France drops three places to 18th,
and Greece continues its downward trend to 90th. Competitiveness-enhancing reforms will play a key role
in revitalizing growth in the region and tackling its key challenges, fiscal consolidation and persistent
unemployment.
The results show that while competitiveness in advanced economies has stagnated over the past several
years, in many emerging markets it has improved, placing their growth on a more stable footing and
mirroring the shift in economic activity from advanced to emerging economies. China (26th) continues to
lead the way among large developing economies, improving by one more place and solidifying its position
among the top 30. Among the four other BRICS economies, South Africa (50th) and Brazil (53rd) move
upwards while India (56th) and Russia (66th) experience small declines. Several Asian economies perform
strongly, with Japan (9th) and Hong Kong SAR (11th) also in the top 20.
Xavier Sala-i-Martin, Professor of Economics, Columbia University, USA, and co-author of the GCR, notes
in the report that, "Amid re-emerging concerns about the global economic outlook, policy-makers must not
lose sight of long-term competitiveness fundamentals. For the recovery to be put on a more stable footing,
emerging and developing economies must ensure that growth is based on productivity enhancements.
Advanced economies, many of which struggle with fiscal challenges and anaemic growth, need to focus on
competitiveness-enhancing measures in order to create a virtuous cycle of growth and ensure solid
economic recovery."
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Weekly Business Highlight
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The Global Competitiveness Report’s competitiveness ranking is based on the Global Competitiveness
Index (GCI), developed for the World Economic Forum by Sala-i-Martin and introduced in 2004. The GCI
comprises 12 categories – the pillars of competitiveness – which together provide a comprehensive picture
of a country’s competitiveness landscape. The pillars are: institutions, infrastructure, macroeconomic
environment, health and primary education, higher education and training, goods market efficiency, labour
market efficiency, financial market development, technological readiness, market size, business
sophistication and innovation. The rankings are calculated from both publicly available data and the
Executive Opinion Survey, a comprehensive annual survey conducted by the World Economic Forum with
its network of Partner Institutes. This year, over 14,000 business leaders were polled in a record 142
economies. The survey is designed to capture a broad range of factors affecting an economy’s business
climate.
*Ayodya Galapattige (Research Officer – IPS) led the IPS team conducting the Executive Opinion
Survey for WEF. Harini Weerasekera (Project Intern – IPS) contributed to this article.
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Daily Mirror – September 9, 2011
SL equities, economy fare well despite global dip- Report
Amidst the tumbling of capital markets all around the globe, Sri Lankan equities proved to be out-
performers once again as All Share Index rising 1.5 percent in the month of August, against the 10-15
percent fall in global equities, a research report said.
India’s Religare Capital, which was once ranked the number one brokerage for research and has a stake in
Sri Lanka’s Bartleet Mallory Brokers further said, the economic front also shows signs of stability as
inflation is on downward trajectory while the macro indicators are going strong.
“Inflation has moderated further to 7% from 7.5% in July. Preliminary estimates suggest that the paddy crop
is recording a bumper harvest, growing at 15% over the last year. The rising food supplies are likely to help
cool off prices further in the near future,” the report noted.
However adding a cautious note, the report stated that inflation is still above its 3-year average of 5.5
percent, and inflation at these higher levels is a major concern for the Central Bank of Sri Lanka.
Commenting on the strong macro economic indicators, the report cited that during the first eight months of
the year, tourist arrivals rose 35.2% YoY to 538, 000 while earnings from tourism grew at a healthy rate of
50% YoY to US$ 450.
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Weekly Business Highlight
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Daily Mirror – September 9, 2011
Empowering guardians of the parks
Recent reports in the media said that visitors to wildlife parks were hit with a work-to-rule campaign,
launched by local wildlife trackers to press home a demand for salary arrears.
The trackers numbering approximately 600, have refused to work overtime, since Friday, 2nd. Their main
demand of is for an upgrade of their wages, which are currently at the rate paid to labourers. They want
their salaries brought up to the same rates paid to clerical staff. “We have been demanding this from 2006,
but nothing has been forthcoming with the authorities turning a deaf ear,” says Prabath Karunatilleke,
president of the WildLife Trackers Association. He added that the trade union action will force visitors to
cut short their tours inside the parks since the gates will close at 4 p.m. on the dot. “There will be no extra
time, however big the rush may be,” he said.
Last week, this column highlighted DIMO Chairman Ranjith Pandithage who said the trackers were
behaving badly in the Yala Park. “During a recent trip (19th - 21st August 2011), it is with a sense of
sorrow when I say that the beauty that once prevailed in the park is gradually sliding into non-existence.
On my visit to the Park, it is obvious that there is very little being done to control the visitors and the
trackers of the Park. The vehicles used during the tour which are not road worthy, belch pollutants and
smoke at rapid intervals that are poisonous to the environment and have irreversible health effects on the
animals. Horns blare from these vehicles which adversely affect the animals. Visitors are encouraged to get
down from their vehicles and distract the animal’s in-order to capture a picture or video. The trackers use
their cellular phones to contact other trackers when they spot an animal and with unbearable noise and
speed, they make their way to that spot creating an unacceptable level of commotion by arguing and
shouting.”
Reasonable earnings
All this boils down to one thing, that these trackers who are obviously not very well paid will do this type of
tourism at the cost of actually having a negative impact on their very livelihoods. Eco-tourism experts are
saying there is no way we can change this situation completely, if there is no downstream economic value
passed down to the trackers. The large hotels situated in the areas near the park or even the big city hotels
in Colombo, who send tourists to the park have a responsibility to ensure that a reasonable share of their
earnings go towards the welfare of these trackers; which in the end will make this business sustainable.
However as this writer pointed out before, in wildlife tourism, the economic benefits lie very much at the top
of the pyramid and the trickledown effect is almost nonexistent in most cases.
Wildlife tourism experts and conservationists say something needs to be done in this area. Trackers need to
be empowered, as they would indirectly be the first guardians of the parks. They deal with the visitors and
their engagement with the protected species within its boundaries. However these trackers are on a very
low level on the employment ladder and educating them is one way to empower them.
More than just spotters
Wildlife tour operators say that the trackers have to be more than just spotters, where they find a leopard,
elephant or a bird when they are showing tourists around. They need to add value to their existing skills
and this would be by actually having knowledge about the various species in the parks that they work in,
their migratory habits, mating seasons and the way they look after their young, eating habits etc. and there
are some interesting special things about endemic species in Sri Lanka which would be of great interest to
tourists.
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For example, the website Ceylon Bird Club says something interesting about Ceylon Grey Hornbills (which
is endemic to Sri Lanka) are well known for their remarkable nesting habits. The female chooses a natural
cavity in a tree generally about 6-10 meters from ground level and incarcerates herself by walling up the
entrance with possibly her own droppings and sediment from the nest floor leaving only a small vertical slit.
She molts her flight and tail feathers while inside. And the male feeds the imprisoned female. Detailed
information of a bird such as this would be real value addition to a tourist rather than just saying that’s a
Ceylon Grey Hornbill.
Training
However being empowered with this knowledge/information is something the trackers cannot do by
themselves, they need to be trained. But wildlife conservationists’ say that there is no mechanism to do this,
it needs to be set up by the authorities. If they have the basic training to act as guides rather than mere
trackers, then the tour operators themselves could rely on the trackers to give that information, and
therefore there would be no necessity to send a special guide on any tour, and that saving could be shared
downstream.
In developing our tourism to reach the 2016 target much needs to be done, there is the big infrastructure
development and there are also the small things that will help in completing the overall picture!
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Sunday Island – September 11, 2011
Politicians – neither efficient nor effective
By R.M.B Senanayake
The recent failures in the Petroleum Corporation where contaminated petrol was imported; failures in the
Ministry of Trade which allowed import of sub-standard cement from Pakistan, the failure of Norochcholai
coal power plant to deliver the output envisaged and the present risk of a power shortage due to the failure
to import the required fuel for the thermal power plants of Lakdhanavi, show that there is something
radically wrong in the State of Denmark.
We have been used to the failures in education in government schools and government universities and
failures in government hospitals where health care delivery has fallen far short of requirements. These
didn’t affect the public too much because there were alternative institutions in the private sector. But the
generation and distribution of electricity is a state monopoly and the import of petroleum is a duopoly with
the LIOC operating under constraints imposed by the government. What could be the cause of these
failures? It is nothing but the take-over of the administration by the elected politicians of the ruling
coalition.
Athenian democracy
In ancient Athens there was direct democracy where the citizens met and made decisions. Another
important function of the Assembly was to elect 100 key officeholders to help run the day-to-day affairs of
the city for the term of one year. While the total number of Athenian bureaucrats numbered 1,100, the 100
elected officials possessed the most power and prestige. They ran the administration. Perhaps the most
striking thing about Athenian Democracy was that the administration (and there were immense
administrative problems) was organized upon the basis of what is known as ‘sortition’, or, more easily,
selection by lot.
The vast majority of Athenian officials were chosen by a method which amounted to putting names into a
hat and appointing the ones whose names came out. For the Greek, a man who did not take part in politics
was an ‘idiotes’ , the word from which we get our modern word idiot. Not only did the Greeks choose all
officials by lot, they limited their time of service. When a man had served once, as a general rule, he was
excluded from serving again because the Greeks believed in rotation, everybody taking his turn to
administer the state.
Intellectuals like Plato and Aristotle detested the system. And Socrates thought that government should be
by experts and not by the common people. For centuries, philosophers and political writers have sought to
dilute the ill-effects of such a system while preserving the principle of democracy where the people have the
last say.
They dumped the principle of government by the common people or their representatives and sought to
have experts running the administration. But although they opposed the common people or their
representatives engaging directly in the administration, they allowed for the experts to be accountable to
the people’s representatives.
Efficiency is the chief objective of administration everywhere
In administration whether in public or private organizations, the fundamental value is "efficiency" which is
to accomplish the work in hand with the least expenditure of manpower and materials. This brings
administration into conflict with elected politicians who are interested in exercising patronage to get re-
elected. So we have a choice- either efficiency or politicization to help MPs to be re-elected.
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Democracy in the sense of government by the people where the common people elected officials to run the
administration would have been alright for the City State of the ancient world or for our ancient kings
under feudalism. But no one will agree that such a scheme of things is suitable for a modern country where
decisions are complex and requiring knowledge of a variety of modern disciplines like economics, physics,
and chemistry.
To the extent that elected MPs who include the President and the Ministers desire to influence decisions,
they will be prone to making wrong decisions since they lack the knowledge and the expertise. Of course
even experts can misuse their decision making power by taking into account extraneous matters such as
material inducements which count as corruption. So the bureaucrats have to be accountable to the elected
representatives. But as long as a decision is honestly taken the officials require protection even if the
decision proves to be wrong in hindsight.
Decisions have to be made under conditions of uncertainty and no expert can guarantee that his decisions
will always be right. There is a higher probability that decisions by experts honestly taken will be more
right than those taken by elected MPs who are laymen. The Athenian model of government by elected
officials is not suitable for large modern communities.
For centuries, philosophers and political writers have sought to reconcile government by the people or
their elected representatives with efficient administration which requires expertise. They have come to the
conclusion that this direct democracy where elected officials ran the administration was suitable only for
the city-state. Large modern communities, they say, are unsuitable for such a form of government
Ruling politicians took over the Administration after 1956
Our post 1956 governments have put elected representatives to run the administration although the formal
structures of a previous era are still there as empty shells. What is worse, these MPs of the ruling party are
exercising power without responsibility since their role is not incorporated in the legal and administrative
structures and procedures. The Financial Regulations and the Establishment Code which is binding on the
public officials don’t apply to them. Surely if MPs exercise functions carried out previously by officials they
should be as bound to observe these Regulations as the officials.
Recently there were pictures of Minister Basil Rajapaksa presiding over the District Co-coordinating
Council meetings in several districts. But they used to be presided over by the Government Agent whose
successor today is the District Secretary. The distribution of funds from the central government used to be
through the various departments in Colombo. The allocation of funds to district offices used to be by the
Departmental head. No more. Now it has become a political function.
But Parliament still votes funds to departments and not to the ministers. In recent years the strict line item
budget has been replaced by some general votes with the Treasury where large sums of money are voted
under such general votes. This has undermined the parliamentary control of finances. It has also politicized
the distribution of funds.
The SLFP government introduced the allocation of moneys to each MP or rather to each MP from the
ruling party or coalition, whereas the earlier practice was to spend money through departments according
to the Financial Regulations, observing tender procedures in awarding contracts for works, services or
supplies. But now the MPs spend the moneys untrammeled by any rules or regulations.
Land alienation is now by the Ministers and the MPs and not by the Land Commissioner. All these have
created disarray in the administration of the government not to speak of corruption. Earlier only the State
Corporations were politicized in their administration including their spending programs. Now such
17FCCISL News Alert
Weekly Business Highlight
05th – 11th September 2011
politicization has entered the government departments as well. Such politicization has infected even the
Provincial Councils and the Pradesiya Sabhas. It is a hopeless situation.
Government by experts or by "idiotes"
Government by elected politicians was adopted after 1956 when a new political class, unsophisticated if not
ignorant in the ways of governance, came to power. So the ruling party MPs sought to give directions and
orders to the bureaucracy. They neither understood organization or administration having had no exposure
to these fields. They wanted ‘yes’ men to hide their ignorance. So they sought to appoint and promote
persons who were their supporters to the jobs including the higher posts in the Administration.
They abolished the Civil Service, a cadre of senor administrators who rotated among jobs and acquired
proficiency in administration over time and whose tenure was regulated. The schedule of top posts was the
exclusive preserve of these officials and no political appointees could be appointed to such posts.
Most people today think of democracy as an inherently good thing. A democracy can be just as tyrannical
as any one man dictatorship - sometimes more so. It was so even in the time of the Athenian democracy,
when other Greek states under the thumb of the Athenian Empire complained just as the people of the
North would complain today.
Risk of a failed State
A State that cannot deliver the functions it is supposed to carry out is described as an ineffective State. A
Failed State would involve more failures such as the failure to maintain law and order or have effective
control of its territory. There is a Failed States Index.
Decades of persistent conflict have exposed thousands of our fellow citizens in the North & East to
insecurity, loss of opportunity, and increased risk of falling into poverty. Those better off among them have
migrated to the West and have done well. But those who remained particularly in the Vanni are facing
poverty and insecurity this time from the military stationed in the North. .
The State has lost legitimacy in the eyes of the Tamil people of the North & East. The vicious cycle begins
with loss of trust in the state to create an inclusive political, social, and economic order made predictable by
rule of law. White vans abducting journalists and now grease devils terrorizing women are features
showing up the loss of legitimacy.
18FCCISL News Alert
Weekly Business Highlight
05th – 11th September 2011
Investment
19FCCISL News Alert
Weekly Business Highlight
05th – 11th September 2011
Daily Mirror – September 5, 2011
Importance of research in stock investing
The basic reason for investing is to make your money/savings grow or appreciate to achieve long term
financial goals. It differs from basic “savings” as investing requires the investor to play an active role,
whereas savings is just passively waiting for the money to earn interest.
All investments offer a balance between potential risk and potential return. As a general rule, higher the risk
of the investment, higher the potential return; conversely the least risky investments offer the lowest return.
Risk-averse investments
Government securities/bonds are treated as risk-free (or riskless) securities, as the government carries the
promise to honour the interest payments and eventually to return the capital. Similarly, Deposits/fixed term
deposits are considered low risk investments (depending on the financial stability of the institution
accepting the deposits) as the fixed rate of interest guarantees earnings of a certain amount.
Risky investments
A more risky investment would be to invest in a business with the intention of making a profit. The risk is
higher as there’s no guarantee that the business would succeed. On the other hand it is impractical for
everybody to start a business and develop it.
Stocks, often called shares or equities, represent part ownership of a business/company. Therefore investors
get the opportunity to be entitled to the profits the business generates without getting actively involved in
the business by investing in stocks in the stock market. However unlike bonds and fixed deposits, when a
share is purchased an investor is not guaranteed of a return.
On the other hand, the potential returns are far greater than most other low risk investment options. The
returns earned from investing in shares include capital gains (by selling the share at a higher price than the
price at which it was bought) and dividends (distribution of profits from time to time by the company to the
share-holders).
What makes share price go up?
A share should go up in value along with the success of the business the share represents. What represents
the success of a business? A successful business would increase its profits in a sustainable manner (not just
one off gains) over a long period of time and as a result increase the wealth of the owners of that business.
The chart below shows the share price and profit growth of Ceylon Tobacco Company PLC (CTC).
Therefore, from a long term investment perspective, it is critical to pick stocks which represents businesses
that will succeed in the long run.
Fundamentals-based research for share investing
The process of identifying businesses with a high probability of success in the long run and checking
whether an investment could be made on such a business at an attractive price (so that you don’t over-pay)
could be called “Fundamentals based research”.
A quality fundamentals-based research usually commences by analyzing the macroeconomic environment.
This would include identifying the likely trend of interest rates, inflation and exchange rate etc.
20FCCISL News Alert
Weekly Business Highlight
05th – 11th September 2011
This would lead the investor to industries that are likely to do well in the future, based on the current and
expected direction of the economy. Once the investor has short-listed the industries he/she needs to
uncover the most promising companies/stocks in those industries which are under-valued (cheap).
Industry-specific research
Investors should understand the factors and limitations to a particular industry’s growth.
Competition: In industries with a number of firms competing aggressively, it will be difficult for any of the
companies to make exceptional profits. For instance the telecom industry in Sri Lanka was quite competitive
in the last few years with the companies continuously brining the tariffs down to attract customers.
Barriers to Entry and Regulations: Certain industries are highly regulated and requires a high amount of
capital to operate profitably. Banking industry is such an example and therefore the existing established
players have the freedom to exploit exceptional growth prospects in the immediate future.
Industry growth prospects: Certain industries offer above average growth prospects depending on the
existing macro-economic environment. For instance with the end of war in Sri Lanka, a revival is seen in the
construction sector with the development of infrastructure projects, hotels, houses etc which in turn will
provide exceptional prospects for companies in the Construction industry.
Company-specific research
Once an investor is convinced about the potential of a particular industry he/she will have to uncover a
share in that industry which will appreciate in the long run.
Competitive Strengths: Certain companies may possess distinct advantages compared to its competitors in
the industry. For example there could be a market leader with a high market share who will benefit from
economies of scale.
Management: Evaluating management of a company is a part of the fundamentals based analysis as the
company relies upon the management to steer it towards financial success. The past track record of the
management and whether they are operating with shareholder’s interest in mind is crucial.
Financials: A company’s financial health can be analyzed by studying the financial statements. Increasing
profits is generally a positive indication which leads to an increase in the value of the business. A strong
balance sheet with low leverage and high cash position indicates the financial stability of a company. Return
on Equity (ROE) can be used to measure the rate of return on the capital which projects how efficiently the
company management is using the money invested.
Attractive company Vs Under-valued stock
Once a company is selected after conducting company specific research, it is critical to evaluate whether the
company’s share is attractively priced (whether it’s an under-valued stock). Even the most promising
companies may not be attractive investments if the share is over-valued.
While a number of methods are used for this purpose one of the simpler methods is the Price/earnings
(P/E) ratio. This ratio basically indicates as to how much you should be willing to pay for a rupee of
company’s profits to buy the share. Generally companies with lower P/Es are cheaper and therefore may be
considered as under-valued stocks. An undervalued stock is considered good to buy.
21FCCISL News Alert
Weekly Business Highlight
05th – 11th September 2011
Risks of non-fundamentals-based (speculative) investing
Some investors seek short-term profits by stock trading. These investors do not follow the fundamentals
based research approach but simply follow trends in the market. For instance these investors may buy a
share when the price of the share is increasing, relying on the assumption that the trend would continue.
While speculative investing may result in exceptional profits in a very short span of time, the risk is also
higher. Shown below is the price graph of a share listed in the Colombo Stock Exchange.
While certain investors would have earned exceptional profits, certain other investors would have incurred
substantial losses by trading in stocks like these.
Therefore from a long term investment perspective the investors should be aware of the importance of
fundamentals based investing in stocks. After all a share represents a business. It is not a miracle item that
keeps on going up for no logical reason.
(Source: NDB Stockbrokers (Pvt) Ltd)
22FCCISL News Alert
Weekly Business Highlight
05th – 11th September 2011
Management
23FCCISL News Alert
Weekly Business Highlight
05th – 11th September 2011
Daily Mirror – September 5, 2011
Job interviewing is Fine Art
Is there a science to recruiting the right person to a business enterprise? As far as I know, there are no
standard recruitment practices even across industries. Some recruiters stick rigidly to a set of planned
interview questions asking every candidate exactly the same questions and others prefer a much more open
style and may ask slightly different questions depending on the individual candidates.
Filling a job, requires more than what is simply listed on a resume. The new person has to be a fit for the
Division he is recruited for, the company as a whole, must have the right attitude, and possess the skills
necessary to get the job done. A recruiting mistake can come back to haunt a company for years to come,
particularly if the person is in a higher executive class of employee.
I personally believe that job interviewing is a fine art. There are no hard and fast rules about what makes a
successful candidate. Interviewing is not science and is not black-and-white. Many grey areas exist in the
realm of interviews, so with that, here’s a few things I’ve learned over the years.
Types
There are many different types of interviews serving diverse purposes.
4Traditional - These are the most common in Sri Lanka. Here we use broad, open-ended questions such as
“Tell us about yourself”, “Why do you want to work for this organization?” etc. This interview is based
more on applicant’s ability to communicate than on the content of his answers.
4Action or Audition –We place the job candidate in a real world situation to determine how he/she would
actually perform on the job.
4Group –We interview the applicant simultaneously with other candidates competing for the same position.
In this format, all candidates appear to be equally qualified, but we want to get a sense of applicant’s
leadership potential and style, as well as his/her personality.
4Stress – We attempt to test how an applicant handles himself/herself under difficult or even unpleasant
situations. We might be sarcastic or argumentative and watch his/her reactions.
4Behavioural – These are based on the premise that past behaviour is the best indicator of future
performance. A behavioural interview will seek to probe the applicant’s answers carefully, getting deeper
into the story than she/she might expect. For example, we might ask, “Describe a situation when you...”.
4Panel Approach - In this type of interview the candidate is interviewed by a group of panellists
representing the various stakeholders in the recruitment process. Within this format there are several
approaches to conducting the interview. The candidate may be given a topic and asked to make a
presentation. Each panellist may ask questions related to a specific role of the position. Sometimes, the
candidate may be given questions from a series of panellists in rapid succession to test his or her ability to
handle stress filled situations.
Real interview
Each type has its plus and minus points. Some interviewers use a mix of two or three types. However, in
any type of interview, its process and outcomes can be affected by a variety of biases including the interview
setting, the behaviour of the candidate and the limitations associated with using human judges to score
24FCCISL News Alert
Weekly Business Highlight
05th – 11th September 2011
behaviour. Many of these problems can be tackled if the interview process is properly designed and carried
out.
How do we get around with the real interviewing, whatever the type we use? I have found out 5 factors to
reckon with. (1) Have a clear idea why we started the interviewing process. Do we need experience or
specialist skills? (2) Check the adaptability of the applicant and willingness to learn. Can he cope with
changing environments? (3) Look for a positive attitude to work: someone who sees the overall picture. (4)
Look for Leadership Skills: someone who understands what needs to be done, and then influence and
motivate others to achieve results. (5) Look for a demonstrated ability to Network: someone who would
instantly be able to bring in new contacts and new customers.
Example
Imagine this scenario: From your room you see a group of 10 women and 3 men outside and begin to
wonder which -- if any -- have the “right stuff” to become the sales manager with your company. You are
not looking for a fixed set of skills or experiences. You are searching for someone far more elusive and much
more important - the perfect blend of energy, humour, team spirit, and self-confidence to match your
customer-obsessed culture. In short, you need someone whose devotion to customer and company amounts
to “a sense of mission, a sense that ‘the cause’ comes before their own needs.”
Fine! You are clear about your mission
To begin the group evaluation, you ask the 13 hopefuls to fill out and read aloud a personal “Coat of Arms” -
a questionnaire on which the applicants’ complete statements such as, “One time my sense of humour helped
me was”; “A time I reached my peak performance was”; “My personal motto is.” Most of the answers are
unremarkable, but a few stand out. One man declares his motto to be, “I am the master of every situation.”
One woman describes herself as “zippy” - a term that fellow applicants find hilarious.
The day’s most involved and revealing test is a group exercise called Fallout Shelter. You tell the applicants
to imagine they are a committee charged with rebuilding civilization after a just-declared nuclear war.
They’re given a list of 15 people from different occupations. They have 10 minutes to make a unanimous
decision about which 7 can remain in the only available fallout shelter. As the candidates propose, wrangle,
and debate, you and some colleagues watch from across the room. Each one of you grade each person on a
scale ranging from “passive” to “active” to “leader.”
At the end of the session, you and your team compare notes on what happened. You decide to ask back four
people for in-depth interviews. That’s not bad; many sessions end with no call-backs. You like the “zippy”
woman, who was active without being domineering. You like the poise and assertiveness of a young man
who emerged as the leader toward the end of Fallout Shelter. First round is over. Coming closer to finding
out which applicant fits best is what the next round of evaluations will be all about.
Recruiting smart
Over the last ten years, a large number of companies have analyzed what separates their winners from their
losers, good recruits from bad ones. These companies compete in a wide range of industries -- from airlines
to steel, computers to hotels -- but they all arrived at the same answer: What people know is less important
than who they are. Recruiting, they believe, is not about finding people with the right experience. It’s about
finding people with the right mind-set. These companies hire for attitude and train for skill.
Yes, attitude is everything. It is far easier to give a positive, enthusiastic person the skills they need than the
other way around. Yet too often recruitment in our country starts with job descriptions and person
specifications that focus exclusively on skills, and knowledge.
25FCCISL News Alert
Weekly Business Highlight
05th – 11th September 2011
Think afresh. Start your recruitment process by determining what workplace attitudes and beliefs are
appropriate for your staff, as well as the skills they need. Ensure that your whole recruitment process
reflects these values and communicates them clearly: your advertising, short-listing criteria and interview
process. Devise interview questions designed to elicit attitudes, based on real experience in preference to
hypothetical situations.
This will make it easier to get a good feel for how authentic the candidates are.
(The writer is a corporate director with over 20 years of hands-on experience in General
Management and human resources development)
26FCCISL News Alert
Weekly Business Highlight
05th – 11th September 2011
Daily Mirror – September 8, 2011
Nurturing internal talent, key for business continuity
By Dinesh Weerakkody
We all know to be a successful CEO, one must have the skills to adapt quickly and thrive in changing
environments. In addition, successful CEOs are required to coach and mentor others to adapt and succeed in
changing environments. Often in the past coaching was used to turn around flagging careers and to help
ineffective top managers to become effective in their roles. Now coaches are increasingly being hired to
support newly hired senior executives, as well as for newly promoted divisional heads and CEOs to manage
sideways and for managing up.
In addition, leadership coaching is used to ensure key talents are ready to take on their next leadership role
and also to optimize strong contributors who do not demonstrate potential and the capacity to move into a
higher leadership role, but are critical for the business. Today, a leadership coach is like a personal trainer
for business. Therefore, hiring a top coach is an investment in people because it helps executives to become
more effective as an executive, as a leader and get nurtured for the next role.
Staff retention
Leadership coaching is also sometimes used when a company desires a change in the behaviour of their
leaders. Having a leadership coach assist with introducing these change helps prevent rebellion or resistance
among different members of the team. Leadership coaches will walk the team through models and processes
that are easy to adopt within their day-to-day operations. Coaching takes the executives through a course of
strengthening everyone’s self-reflection and awareness. Together they evaluate the patterns that will create
the new future they desire for the company.
Additionally it expands their appreciation of each other and new perspectives are discovered. The
communication channels are opened up to enhance effective and clear communication with all members
regardless of their rank or position in the company. Properly structured Leadership coaching not only
improves staff retention and increases productivity it also improves the performance of those coached. As a
result, the company is able to improve its production-both in quality and quantity as well as build bench
strength
Coaching far more effective
The UK’s Chartered Institute of Personnel Management reports that 51% of companies (sample of 500)
consider coaching as a key part of ‘learning development’ and ‘crucial to their strategy’, with 90% reporting
that they ‘use coaching’.
More recent research in 2011 by Qa Research, an independent marketing research agency in the UK, found
that 80% of organizations surveyed had used or are now using coaching, but also found that while 90% of
organizations with over 2,000 employees had used coaching in the past five years, only 68% of companies
with 230-500 employees had done the same.
However despite the popularity companies are still struggling to measure its rupee impact. Some companies
use development assessments before and after the coaching and some companies use 360-degree-feedback
before and after to look for changes in behaviour and relationships. While some others end up getting
feedback from the boss, peers and some times from key customers to track the behavioural changes.
(The writer is CEO of HR CORNUCOPIA Lanka Ltd )
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