This is just a wild post.
Going by the facebook IPO fiasco and Indian economy slide, I couldn’t help but notice a few similarities:
- Hype: Both generated huge hype. Before IPO, FB’s valuation increased by a few billion $ in every few months. Indian economy too generated huge hype after its surprising performance in 2003-08. It was assumed the time has come when India will only grow upwards. The real test for India was whether it could grow at pre-crisis levels given the uncertain global environment. India’s policymakers believed so. But sadly was not true.
- Numbers: For 2011-12, govt. projected growth at 9% (+/- 0.25%). And the final number is 6.5%. FB issued IPO at $ 38 but has been around $25-28 since then. The actual numbers continue to disappoint from the potential hype. Analysis shows FB’s IPO price was overvalued. Indian analysis shows, post-crisis the potential growth has declined to 7-7.5%. Anything more leads to inflation. Right now we do not even know how to generate inflationary 8% plus growth..
- Demographic Dividend/Discount: If FB was a nation, it would have been third largest country in terms of population after China and India. Its subscriber base is 800 mn (active users). And this was highlighted majorly before the IPO. The number of subscribers meant so much value and so on…Similar story goes around for India as well. Apparently, with world facing ageing prospects Indian population is entering into so called demographic dividend stage. It would have the largest and youngest work force and hence will face huge growth prospects.
However, both assumed population will just deliver without figuring what to do with the population. FB does not know how to generate revenues from its huge base. India does not know how to train and educate such a work force. The dividend is soon becoming a discount. FB has to continue to provide its subscribers free services to keep its subscriber base intact. Indian politicians are always looking at ways to throw freebies to public to keep them happy as education/training is always difficult.
- Lack of Governance: In both there are governance issues. Aswath Damodaran shows how FB is actually a corporate dictatorship with most control in hands of Zuckerberg. In India’s case, misgovernance is all over the place from statistics reporting to development policies. Corruption cases are rampant and nothing being done to clamp down on the same. India is a combination of misgovernance and lack of governance at the same time. In many cases, the Indian government actually behaves like a dictator. The policies are announced without consulting its own allies which leads to embarrassment in the Parliament.
Both are based on democracy principles but it is not followed in spirit. FB ironically has been a major force in collapse of autocratic regimes…
- Leadership: The way FB IPO has gone, questions are bound to come on the business acumen of Zuckerberg. Some feel he should have remained a techie and appointed a sharper person to take care of business and finances. Similarly, people now feel Dr. Manmohan Singh should have stuck to economics and not been into politics. Sticking to your core is as important as ever.
Just random thoughts actually. Not strictly comparable but anyways…