Sudhir Ahluwalia's Blog, page 20

When should I buy a loss making company?

The decision to buy or not to buy a company depends on its inherent value. Value is determined during preliminary business due diligence undertaken before the decision to buy is taken.

Preliminary due diligence entails looking at the inherent business of the company. You look for answers to questions like:

Is the business inherently profitable?Are competitors running a similar business profitably?What is the longevity of the business?What is the brand reputation of the company in the market?What is the level of debt and other liabilities of the company?Does the company possess land or other assets which can be stripped and sold?

I like to do business due diligence quietly and often incognito. Only when the preliminary determination is made that the business can be viable or has bits and pieces that can be stripped and sold is contact made to the company.

If you reach an agreement on terms, you conclude a term sheet. The formal due diligence process with accountants and other people follows.

A decision to buy or not to buy is made coldly. If you believe that a business can be turned around and converted into a profitable venture, it is a yes.

Further, if you believe you can strip the assets and make a bit of profit, the answer is again a yes.

Otherwise, you move on and look for the right asset. An entrepreneur who observes self-discipline and makes the right call based on facts succeeds in making a profit. Those who believe too much in gut feel do not last long in this business.

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What are the key challenges in ntegrating a company post its acquisition?

Integrating a company with an acquiring company is a delicate and critical activity. Many deals fail to yield projected returns because of the failure to integrate the acquired company’s business processes, technologies, human resource systems, policies, and culture.
Insecurity amongst the workforce is high. Hierarchies are threatened, and people in leadership positions, in particular, are worried about their future. Speculation and rumors on the road ahead for the company are rife.
If the acquisition is undertaken by private equity, any other investment institution, or a company familiar with post-acquisition challenges, these are handled relatively quickly.
Integration experts are brought in to move the integration process quickly and efficiently. The integration consultant encourages the new leadership to undertake a company-wide communication campaign in which the acquiring company’s objectives, vision, and strategies are explained. Employees’ questions are answered, and a concerted effort is made to calm things down.
Meanwhile, the tedious but essential process of integrating processes, technologies, strategies, business models, marketing strategies, customer outreach, sales review, organization restructuring, financial review, review of functions, and much more is undertaken.
The effort is to move the integration process quickly.

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Does the world’s food system need to transform to combat climate change?

Climate change is impacting farming practices worldwide. Farmlands are losing productivity in some areas as the climate is getting drier, summer is getting longer and hotter, water stress is becoming severe, and the existing farming practices cannot cope with this change.
On the other hand, it is expected that with warming, colder parts of the world where today farming is not being done will become suitable for agriculture.
These climatic changes will turn producers and exporters of food into net importers. Other parts of the world will turn into surplus food producers.
Human ingenuity and technology are actively working to find solutions that make it possible to recycle and reuse water, a critical ingredient in farming. Israel has shown how a water-deficit region can convert into a water surplus.
There are enough use cases available globally that show that farming is possible even in most adverse climatic conditions. These solutions help us create optimal conditions for the growth of agricultural commodities.
Another change that will occur is the impact on existing global supply chains. The effect of COVID 19 on global supply chains is still lingering. The world is taking time to realign global supply chains. The world is also scrambling to readjust the production and supply chains of wheat and other agricultural commodities from the impact of the Russia Ukraine war.
The world food systems will get impacted by climate change. Scientific solutions to handle this disruption are available. The only way human civilization will get mortally affected is when this scientific ingenuity is used to self-destruct.

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Why did India stop wheat export? Is it just to make more wheat available for domestic use?

It is a classic example of government policy-making. Most of the time, it happens behind closed doors. In this case, we see glimpses of it in the public domain. Let me dilate on this a bit.
Government policy is dictated by national interest. Every asset that a nation has is used to further its national interest. Recently, India has used two of its assets, Covid 19 vaccines and wheat, to promote its national interest. We will focus on grain here.
Ukraine- Russia conflict has led to supply disruption of wheat and oil. Prices of both these commodities have dramatically risen. Oil importers like India are getting impacted by high oil prices. One policy response from India was to buy discounted oil from Russia.
The Middle East countries are food-deficit countries and major importers of wheat. They are big oil exporters. The tradeoff is quite simple, India will sell the region grain provided it gets something in return. It may be discounted oil.
If India continues to permit the sale of wheat n the open market, the benefits will go to traders. India has turned the available export tap off but kept the country to country export on. Now wheat is an asset available for bargaining. How is this playing out?
Traders who had bought wheat from farmers will now have stock on their hands which they will now be forced to offload onto the open domestic market. Market supply will rise, cooling food prices.
Farmers selling directly to traders will come to the government and sell wheat at Minimum Support Prices. Wheat stocks will again build. The stock is now used on government contracts on terms in the national interest. The country can decide not to sell wheat to Turkey, which has a negative policy view of India.
Public policy has to be nimble. The wheat import ban in India is an example of public policy. You will see more of this in play as the country acquires capabilities and builds a wider asset base.
Everyone does it. India is just a new entrant into the global club.

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Can any food actually have anticancer properties?

Fruits and vegetables are rich in phytochemicals, helping build body immunity. Antioxidants present in plant-based foods reduce the risk of cell damage. Plant-based phytochemical-rich foods help regulate hormones such as estrogen, slow cancer cell growth, and block inflammation.

Cruciferous vegetables such as broccoli, cauliflower, cabbage, related vegetables, lycopene found in tomato products, pink grapefruit, watermelon, and apricots protect several types of cancers.

No single antioxidant molecule has been found to replace the health benefits generated by a combination of natural phytochemicals found in fruits and vegetables. Consumers need to eat 5–10 servings of a wide variety of fruits and vegetables daily to mitigate the risk of chronic diseases and to meet nutrient requirements essential for optimum health (Liu, 2004).

Dietary phytochemicals act as modulators of cellular signals that trigger proteins that will make cells turn cancerous (Lee et al., 2001). In both preclinical animal models and human studies, dietary phytochemicals were cancer-preventive (Lee et al., 2013).

Turmeric (curcumin), red chili (capsaicin), cloves (eugenol), ginger (zerumbone), fennel (anethole), kokum (gambogic acid), fenugreek (diosgenin), black cumin (thymoquinone) contain chemicals—shown in the bracket after each herb—that prevent cancer (Aggarwal et al., 2008).

Broccoli and other cruciferous vegetables too are observed to reduce cancer risk in organs such as colorectum, lung, prostate, and breast. This protection is attributed to the high glucosinolates molecules found in such vegetables (Abdull et al., 2013).

Numerous scientific studies have shown that the consumption of fruits and vegetables significantly reduces cancer incidence. Other cancer-preventive molecules identified as chemopreventive include isothiocyanate, genistein, epigallocatechin gallate, lycopene, and resveratrol. The molecules are found in select herbs, fruits, and vegetables. Some of these have already been listed earlier (Russo et al., 2010).

While phytochemicals, which are nonnutritive chemicals found in plants and food, modulate cell signals and cause anticancer effects, the challenge now is to develop personalized supplements of specific phytochemicals for each clinical situation (González-Vallinas et al., 2013). It is the emerging frontier of cancer-preventive research. Anticarcinogenic action is caused by phytochemicals impeding intracellular signals that trigger cancer (Surh, 2003).

Some phenolic compounds identified in medicinal herbs and dietary plants are phenolic acids, flavonoids, tannins, stilbenes, curcuminoids, coumarins, lignans, quinones, and others (Huang et al., 2009).

Whether a purified phytochemical has the same health benefit as a whole food or a mixture of foods, each with its unique phytochemicals. Most antioxidant activities of fruits and vegetables come from phenolics and flavonoids found in them. The additive and synergistic effects of phytochemicals in fruit and vegetables are responsible for their potent antioxidant and anticancer activity. The benefit of a diet rich in fruits and vegetables is attributed to the complex mixture of phytochemicals present in these whole foods (Liu, 2003).

Tea (Camellia sinensis) and tea components possess anticancer properties in experiments conducted on different animal models (Yang et al., 2000). Flavones and isoflavones found in plants also contribute to cancer prevention (Birt et al., 2001).

Also, Berries have been found to counteract, reduce, and repair damage caused by oxidative stress and inflammation. These fruits contain phytochemicals that help build resistance to cancer. The polyphenol compounds in these fruits are- flavonoids, proanthocyanidins, ellagitannins, gallotannins, phenolic acids, stilbenoids, lignans, and triterpenoids (Seeram, 2008).

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What are the main benefits of organic food?

Comparing the nutritional value, sensory qualities, and food safety of organically and conventionally produced foods, it was found that, except for nitrate content, there is no strong evidence that organic and conventional foods differ in concentrations of various nutrients or even contaminants (Bourn et al., 2002).

On the other hand, a nutritional quality comparative assessment study for fruits, vegetables, and grains raised in organic and conventionally grown crops showed that the former contained significantly more vitamin C, iron, magnesium, and phosphorus and considerably fewer nitrates (Worthington, 2001).

Phenols are important to human health. The total content of this class of metabolites was studied in marionberries, strawberries, and corn cultivated on organic and conventional farms. Comparing the three most common post-harvest processing treatments — freezing, freeze-drying, and air drying found that the phenol content was higher in organically raised crops (Asami et al., 2003).

162 studies, 137 examined nutrient quality in crop products, and 25 livestock products were analyzed. Conventionally produced crops had a significantly higher nitrogen content, and organic crops had a higher phosphorus content and higher titratable acidity. The scientists also noted no evidence of a difference in nutrient quality between organically and conventionally produced foodstuffs. Small differences in nutrient content between the two could be related to differences in production methods (Dangour et al., 2009).

When compared to developing countries in the molded parts of the world, nutritional differences like minerals, vitamins, proteins, and carbohydrates will determine the popularity of organic and conventional farm products. As compounds that help protect the human body from disease are understood, this difference between organic and conventional crops became an area of interest. Organic vegetables and fruits were more likely to contain more of these defensive compounds when compared to those produced on conventional farms (Brandt et al., 2001).

Magkos et al. 2003 analysis show that there is little evidence that organic and conventional foods differ in various micronutrients like vitamins, minerals, and trace elements. But they did observe a slight trend towards higher ascorbic acid content in organically grown leafy vegetables and potatoes. Lower protein concentration but of higher quality was seen in some organic vegetables and cereals crops.

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How will climate change impact global food security?

Wheat, rice, maize, and soybean provide two-thirds of human caloric intake. Without effective adaptation and genetic improvement with each degree Celsius increase in global mean temperature, a reduction in global yields of wheat will occur by 6 percent, rice by 3.2 percent, maize by 7.4 percent, and soybean by 3.1 percent.
The Food Policy Report of the International Food Policy Research Institute (IFPRI), 2009, has estimated that South Asia, in particular, will be hit particularly hard. Large-scale yield declines for the most important food crops will be seen.
Climate change will result in additional price increases for the most important crops – rice, wheat, maize, and soybeans. Rainfed maize and irrigated and rainfed wheat will see substantially reduced yields. Sub-Saharan Africa will see mixed results with small declines or increases in maize yields and large negative effects on rainfed wheat. The Latin America and Caribbean region will show mixed yield effects.
Calorie availability in 2050 will be lower and is expected to decline relative to 2000 levels throughout the developing world. The decline in calorie availability will increase child malnutrition by twenty percent. Aggressive agricultural productivity investments of $US7.1 to 7.3 billion are needed to raise calorie consumption to offset the negative impacts of climate change on the health and well-being of children.
Unconventional food production technologies appear to be the solution to making world food secure.

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When should I think of organization design in the business transformation journey?

An organization is a tool or means that help you achieve a business objective. Therefore the starting point in a business – startup or otherwise is to ask yourself the following question:
What is it that I want my business to achieve?
How can I do that?
What skills and resources will I need to achieve my business objective?
Do I have the capital to achieve my business objective?
Where and how can I generate the capital required?
When you have the answers to these questions, you start looking at the tools to deliver what you have thought to achieve.
The organization design comes here. These are generic questions for which you should obtain answers before looking at organization structure, roles, responsibilities, technologies, and processes.

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How sustainable are Indian unicorn business models?

Most Indian unicorns’ business strategies seek to target the vast mass market in India and its demographics that are weighted heavily in favor of the youth.
The Indian economy is in the very early stage of the growth cycle. Per capita of GDP in India in 2022 will be around $2022. By 2030, this number is projected to reach $3800, which is still much lower than any middle-income country.
Given the nature of the Indian market, the mass market, and low average income, the focus of Indian unicorns is based on sound business logic.
If we go by the way the initial round of IPOs has been valued, there are many questions that these businesses will require to answer when it comes to sustainability is concerned. These businesses hurry to raise valuations and then make a quick exit after making windfall profits. These are serious flaws in strategy when it comes to sustainability is concerned. There does not appear to be anything wrong with their business models. The problem lies in strategy, vision, and governance.
Indian unicorns are designed today for acquisition. Most of them will disappear from the market ten years from now. Mature Indian and foreign companies will be acquiring market share from these companies. Not all unicorns will succeed in making windfall profits via the acquisition route.
Indian unicorns require a serious re-look at their business strategies to get even close to sustainability.

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What is the relationship that exists between organizational structure and strategy?

The organization is the means to strategy implementation. Organizational structure gives the organization the form. It directs human resources to focus energy and innovation on business focus areas defined in the strategy.
Let me illustrate this with an example.
Apple’s business strategy emphasizes product design. It has a strategy that has led to its creating iconic products. Unlike many other organizations, the product design division reports directly to the leadership team and the board at Apple. Product design decisions are quick, and design innovation gets the highest organization. Other than this feature, Apple’s organizational structure is typical of any other organization.
SpaceX and Tesla have an agile organizational structure, on the other hand. The emphasis is on fungibility and rapid deployment of resources to a project area that requires attention. Hierarchy is not given importance, and communication to the top leadership, including Musk, instantaneously. These organizations will appear disorderly and even chaotic to a traditional organizational design person. But it is the agile organization design that is helping it achieve the innovation that these companies are now known for. Here the organization is closely embedded with business strategy.

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