Lessons from Nike
On Wednesday, February 18, 2009 14:28 by Sudip BandyopadhyayThirty years ago, retailers would be quite content to source the shoes they wanted to sell as cheaply as possible. The working conditions of those who produced them was not their concern. Then headlines and protests developed. Society started to hold them responsible for previously invisible working conditions. Companies like Nike went through a transformation. They realised they were polluting their brand. Global sourcing became visible. It was no longer viable to define success simply in terms of buying at the lowest price and selling at the highest.
Human beings are bad at learning and changing. It takes a good crisis to drive home what may have been staring us in the face. So what in particular are the lessons for all those concerned with saving, investment, borrowing and lending? For many years, under the guise of defending capitalism, we have been allowing ourselves to degrade it. We have been poisoning the well from which we have drawn wealth. We have misunderstood the importance of values to capitalism. We have surrendered to the idea that success is pursued by making as much money as the law allowed without regard to how it was made. Financial services and investment are today where footwear was 30 years ago. Public anger at the crisis will make visible what was previously hidden. Take the building up of huge portfolios of loans to poor people on US trailer parks. These loans were authorised without proper scrutiny of the circumstances of the borrowers. Somebody else then deemed them fit to be securitisedand so on through credit default swaps and the rest without anyone seeing the transaction in terms of its ultimate human origin.
Each of the decision makers thought it okay to act like the thoughtless footwear buyer of the 1970s. The price was attractive. There was money to make on the deal. Was it responsible? Irrelevant. It was legal, and others were making money that way. And the consequences for the banking system if everybody did it? Not our problem. Now we are paying the price in trillions of dollars for that imprudent attitude.
kamlesh bhatia says:
February 18th, 2009 at 5:24 pm
Sudip what you said is very true..in the rush to make many people forgot necessity of hard work.. fiancaial markets had become sort of gambling.. crazy valuations (P/E) were assigned to the companies without giving thoght to any fundamentals and it was going only one way i.e up for 5 years.. the law of averages was bound to catch up and hence now we have no reason to complain because it was our greed that to chase unrealistic returns year after year for 5 years.. in doing so the prices of other assets also went over the roof and this became a visvisos circle.. thankfully the cooling has now started.. asset prices (except gold) are moving to a realistic levels and now is the time to invest in good sound indian bluechips because if we were ready to put our money at 21K index level then why not today.. afterall we do not depend only on expoorts (except for IT and to some extnet textiles).. we have a huge domestic demand and there is no reason why our manufacturing sector will not do well as also this is a election year and govt will spend huge amount of money on infra which will have a ripple effect on other sectors of our economy..hoep Q1 of next fy is better
Sanfu says:
February 22nd, 2009 at 6:59 pm
Hi Sudip
Your article is absolutely true. Protest against Nike helps them to invest money in the developing countries production units which slightly increase the cost but improved the condition of labour tremendously. Increase in cost price was balaced by increase in brand equity of Nike. When do u expect developing countries like India will be ready for finacial products like mutual funds whose aim would be base ond ethical investment not only on returns.
Sudip says:
February 23rd, 2009 at 4:49 pm
Thank you for your kind words.
To my mind, more than Mutual Funds , the Life Insurance Industry needs to transform itself. Products and Services which are appropriate and long-term value creator both for the customers as well as the shareholders of these companies, needs to be developed and marketed. Current focus on only building top line by selling inappropriate products should change at the earliest.
sanfu Jain says:
March 3rd, 2009 at 5:38 pm
Hi Sudip
Thanks for reply
It’s great to hear from industry stalwart that products and services which are appropriate and long-term value creator both for the customers as well as the shareholders are giving more importance than selling high margin products only which is main trend in the industry. It’s really nice that one of the largest player focus on customer care equally with shareholder. My question is for other side of table. Indian investors are mainly focus on getting maximum return with minimum risk and all advisors also suggest same. When can we see Indian investors focusing more on companies which follow highly ethical standard and invest in products like Mutual fund or Insurance which follow style of ethical investing (At present there is no financial product which focus on investing in companies taking care of environments, good to employees, follow strict corporate governance etc, many European or American Pension funds, mutual funds, insurance companies strictly follow this kind of strategy and getting good returns). It would be great if you can guide future trend of Indian investor or Is Indian financial market at nascent stage, these strategies are fad and will not work nearly in India. Thanks