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Using condoms to make sarees & Horlicks to feed cattle: How business decisions lead to surprising outcomes
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kentuckydaka
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Posted on 07-29-11 4:22
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It takes 14 condoms to make a Banarsi saree. Around a decade ago, doctors in Varanasi finally discovered why free condoms being distributed for family planning had suddenly become so popular. They were being used to make the city's most famous export, the Banarsi saree.
The condoms are reversed and used to rub the bobbin (on which the yarn is wound) and smoothen it with their lubrications. This ensures that the bobbin move faster and at the same time the yarn does not snap. The weavers now use condoms to protect their fingers while weaving.
The Sonepur mela (fair) held in Sonepur, Bihar, is one of the biggest cattle fairs in the world. The story goes that around this time the sale of hair dye suddenly shoots up, and massive amounts are sold. Apparently the hair dye is used to blacken buffaloes, which are on sale in the mela. So the blacker the buffalo, the more money you make.
In fact, talking about buffaloes,Horlicks is often used as a health drink for cattle in some parts of the country. So what is common to all these stories? Thelaw of unintended consequences, which at a very basic level states that purposeful action can lead to unintended consequences. The consequences highlighted in the stories are positive consequences, but that is not the case always.
The high salaries that CEOs get paid in the US has always been a concern. To mitigate this, the Securities Exchange Commission (the stock market regulator in the US) decreed that all CEO salaries need to be disclosed to the public. Instead of having the impact it was supposed to, it had the opposite effect.
Between 1976 and 1993, CEO salaries went up from 36 times the pay of the average worker to 131 times. As behavioural economist Dan Ariely explains in his book Predictably Irrational, "It encouraged other CEOs to demand higher pay, since now they had hard data telling them they were underpaid."
SEBI, the Indian stock market regulator, decided to move to a zero entry load regime in August 2009. This meant that mutual fund agents and distributors would no longer be paid commissions as a fixed portion of the amount an investor was investing through them. The agent would now have to separately negotiate his commission with the investor. The idea being that this would move commissions in the downward direction.
While the intentions were noble, the outcome was not. The agents and the distributors simply stopped selling mutual funds and started selling high commission paying investment products offered by insurance companies.
The New Pension Scheme (NPS) that opened for the general public in May 2009 has extremely low charges for investing. The fund management charge of NPS is 0.0009% of the value of the investment, every year.
In comparison, insurance companies charge 0.75-1.75% as fund management charge. Despite this NPS hasn't taken off, given that there is no incentive for distributors to sell the scheme. So the low charges which were supposed to be good for the customers haven't turned out that way, with no incentives for distributors to sell the scheme, making it a non starter.
In the mid 1980s, Japan wanted to develop Tokyo as an international financial hub. To do this, a lot of restrictions on domestic as well as international financial transactions were done away with. The reforms allowed Japanese corporates to access the bond market. This meant fewer clients for Japanese banks and so they pushed up lending to real estate developers
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magorkhe1
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Posted on 07-30-11 8:19
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