Business Planning with a Black Swan Event: Currency Policy Event and Macroeconomic Impact

Executive Summary: How does a global business make country specific plans in the face of black swan currency events? How do you cut through the noise and focus on the macroeconomic impact of a dramatic currency policy move in a BRIC country? Ask fundamental questions after thinking through the factors at play. Some quick Thanksgiving holiday thoughts. For quicker reading, skip the Background section and jump to Factors for key points. 

Background

US economic trends and recent events have captured our attention. In these interesting times, we consider a currency policy black swan event and leverage that for some thoughts that may help you with business planning in these volatile times.

What makes a black swan event? How about making specific currency notes- that make up a significant portion of notes in circulation- legal tender no more, at short notice? India took the dramatic step to 'demonetize' the existing 500 and 1000 rupee notes.

As additional information, a blog post, by Larry Summers and Natasha Sarin, is here:
http://larrysummers.com/2016/11/21/most-sweeping-change-in-currency-policy-in-the-world-in-decades/

Factors
Now, the impact of this move needs to be assessed in terms of several factors:
- Existing currency policy and economic context,
- Consumer behavior and impact on share of wallet of goods and services for the near and long term,
- Different strata of economic activity that make up the complex country, starting with digital economy versus lightly banked economy versus the cash economy versus the barter economy and their economic interactions, not just the taxed versus the un-taxed parallel economy,
- Industry sectors, ranked by their dependence on the cash economy (do consumer discretionaries, cellphone and construction industries take a hit? For how long?),
- Cash management approaches across industries,
- Legal framework to deal with defaults, bankruptcies and working capital challenges,
- Asset classes and impact to specific stores of value like the dollar and gold and potential 'microbubbles',
- Banking and financials sector structure and fractional reserve systems trends,
- Trade,
- Global interconnections with other economies not explicitly identified from sectoral trade,
- Currency exchange rates and the assets and factors backing and propping up a currency,
- Monetary policy and implications of currency that ceases to exist and is no longer
- Central banking tools and accounting for currency events,
- Communication and planning for the event, including managing business and citizen concerns,
- Social change implications of the event and associated hand holding of citizens,
- Central bank, government, large banking and financial institution and industry co-ordination over operational aspects, processes and execution.

Key Questions
There are a wide variety of views on this complex topic that may or may not cover all the factors outlined above. Regardless of the diversity of thought and ideas, here are three questions that may help start the conversation on potential outcomes:
1. What is the risk, in %age terms, of the Indian economy (or large parts of the economy) going into deflation after the 'demonetization' move?
2. What is the risk, in %age terms, of the Indian economy going into stagflation?
3. What is the risk, in %age terms, of the Indian economy suffering some sort of a Japanese Lost Decade?

These questions are a starter list to help us cut through the noise and identify potential, pragmatic outcomes of the dramatic currency policy decision. This may also form your framework for tweaking your business planning for 2017 for a BRIC economy.

What do you think?

Note: This post can also be found on Medium, here: https://medium.com/@insightplusidea/currency-policy-black-swan-and-macroeconomic-impact-5b56c25fe244#.3j594cf8l

Conference Panel: Healthcare in India

Before stepping into the panel, I had a pretty linear approach to the Indian healthcare business:
1> Regulatory frameworks -> IP, constraints.
2> Industry-> market structures, services, and maturity of symbiotic players.
3> Consumers and Markets-> segmentation.
4> Companies-> Revenues-> Products and Services; Costs -> Manufacturing, Distribution, Licensing.
5> Distribution models.

Listening to the panelists from Pfizer, a healthcare company (Apollo Hospitals), a generic drugs company (Dr. Reddys) and Carlyle, I began to focus on 2 takeaways:
1> Healthcare Framework and Policy Innovation: The parallel here is the effort in the Indian Financial Services sector to develop frameworks given the results in the US financials "market". Another parallel is the U.S. music and film industry.
2> Business Model Innovation: Focused on access to healthcare services and drugs. Access equates not just to distribution, but also to price points. The parallel here is the U.S. (global?) music industry.

Healthcare Policy Framework Innovation
1> The "Access" Case for Policy Frameworks:
Amit Patel from Dr. Reddy's made an interesting point that bringing down price points in drugs, patented or otherwise, may bring about increases in revenues, due to increases in volumes of users. He carefully avoided talking about elasticity, but he was effectively driving at segmentation and managing the segments.

How is this thought process relevant in the Indian Healthcare context? Unlike in the U.S.- given the context of healthcare insurance in the US- the price of a drug effectively forms an access barrier to those who need it. Healthcare in India invariably involves a large out of pocket expense component.

These access issues roll up into a need for policy frameworks that develop multiple markets and multiple market entities that collaborate to serve unmet demand.

2> The IP Case for Healthcare Frameworks:
Again, the panelist from Dr.Reddy's pointed out that a patent regime is an outcome of a particular economic environment and necessity. The U.S. music industry is coming to grips with markets evolution driven by technology. Do the U.S. music and film industries need to rethink how they look at IP and its enforcement? Would they have to take another look in the future?

3> Policy Roadmaps:
How about applying an idea, similar to product roadmaps for agile development, that I suggested here:
http://randomjunkyramblings.blogspot.com/2008/03/conference-panel-infrastructure-in.html

Business Model Innovation
On distribution, the value chain, and operations, I find parallels between the music industry and the healthcare industry. Supply needs to innovate to stoke Demand.

More about this as I add to this blog.

Conference Panel: Infrastructure in India

Commenting on the delays in getting infrastructure projects off the ground toward creating a project pipeline, G.V.Sanjay Reddy, Vice Chairman, GVK Industries Ltd., pointed out that it is more important to get decisions made in getting infrastructure projects off the ground as opposed to developing detailed policy frameworks. That's the 30,000 foot eyeview of the problems in execution.

This, coming from an India company, seems to make sense. The India company has expertise in managing vested interests throughout the project lifecycle and a greater appetite for management risks.

Could there also be a realization that once Indian firms develop core capabilities and differentiate, a network of firms/ contractors/ sub-contractors model would become feasible?

Another thought that I would have like to pose to the policymakers is the consideration they give to developing policy roadmaps.

What do you think?

The Usual Disclaimer: This is purely a knowledge sharing resource. Ethically, context is everything, and I will gladly retract anything that affects the parties mentioned. Call this my mini OpenCourseWare, if you will, where Open signifies life experiences.