Should Ratan Tata advise Mukesh Ambani about how to use his wealth?

Should Ratan Tata advise Mukesh Ambani about how to use his wealth?

A couple of days ago famous industrialist Ratan Tata commented about the lavish life style of another billionaire business tycoon Mukesh Ambani quoting his 27 storied Mumbai house viz., Antilla. Tata said that Mukesh Ambani's house Antilla represents the rich Indian's lack of empathy for the poor. His remarks: "The person who lives in there should be concerned about what he sees around him and [asking] can he make a difference. If he is not, then it's sad because this country needs people to allocate some of their enormous wealth to finding ways of mitigating the hardship that people have." 

Is Ratan Tata right in his remarks or is he misguided in his judgements? Is he aware about the role of an entrepreneur in an economy or is he ignorant of this basic economic fact? Or is his remarks has some underlying assumptions which make those remarks perfectly apt for Mukesh's lifestyle? Let me deal with these questions one by one. I take two scenarios to carry out my analysis. In first scenario we assume that Mukesh Ambani is an honest entrepreneur and his profit comes from the market competition. In second scenario we assume that, Mukesh is not an honest entrepreneur and his profit comes from his business ties with government officials and his manipulation of the system of State. We see the implications of Ratan Tata's remarks under both these scenarios.

Scene 1: Mukesh is an honest entrepreneur

I first make an assertion and then go onto prove it. If Mukesh is an honest entrepreneur then his profit - which he earned in the market competition - is absolutely legitimate, and if he don't desire to do a philanthropist work then that is his voluntary choice. Ratan Tata has no right whatsoever to advise Mukesh about allocating his honestly hard earned wealth amongst the poor people or to comment on his lavish lifestyle.

As Ludwig von Mises explained, the only way in which an entrepreneur can make profit in the market competition is by serving and fulfilling the most urgent wants of his customers in the best possible way, and that best possible way is of providing top quality goods at the lowest possible price. Only those entrepreneurs succeed and make profit in the market process who can ascertain and fulfill the subjective wants of customers in the best way compared to his counterparts. 

By producing and selling top quality goods at a lowest possible price successful entrepreneurs allow even the very poor people to buy his products. By allowing them to buy his products he lifts their standard of living; he lifts them out of their poverty even without raising their nominal meager income. That happens because with the falling prices in the market with the same amount of nominal income people can now buy more goods and services i.e., their real income rises. And no sane person will deny that this is the real way of increasing prosperity in the society; this is the true way of eliminating poverty and lifting the standard of living of millions of poor people. 

Philanthropy, about which Ratan Tata is advising Mukesh, will only help poor people in a very short run i.e., for the urgent immediate consumption purposes. Such help to poor people will actually harm them in the long run by making them dependent on such easy free money. It will not cultivate any habit of hard work and independent living in those people. Redistributing the income will only exacerbate the problem of poverty because human nature is such that most people will always prefer the free goods. Such allocation of rich peoples' income will make everyone of us poor too because rich people play an important role of providing essential savings for the economy. And without savings it is impossible to sustain a labor population in present time which is involved in production of intermediate capital goods. And without capital goods it is impossible to increase the future production of final consumption goods, and without that progress (so-called growth) is not possible. Capitalist class - which includes people coming from all strata of society, and not just rich - plays a pivotal role of supplying this saving. If they are forced to allocate their saving to poor people, who will mostly use it for immediate consumption, then society and economy cannot progress and without progress everyone of us will be poor one day for sure.

And people should not forget another vital economic truth that, honest entrepreneur do not become rich by exploiting the public, but they are made rich by their consumers i.e., the same public. Consumers voluntarily buy the products sold by such sellers because they prefer their products over other sellers. And in this process they give their portion of income to these entrepreneurs making them rich in turn. Profit is a signal that the businessman is fulfilling the most urgent wants of his consumers in a best possible way, and that's why he is rich. On the other hand those entrepreneurs who make losses are not fulfilling consumers' wants properly and so they remain poor in turn by going broke! (to deeply understand the beautiful system of profit & loss I will advise my readers to read Mises' wonderful book, Profit and Loss).     

 

So, if Mukesh is an honest entrepreneur then he has all the rights to keep and use his profit in whatever way he wants to. 

Scene 2: Mukesh is a dishonest entrepreneur

But, if Mukesh Ambani is a dishonest entrepreneur and his profit comes solely from his friendships with the government bureaucrats and politicians then he has no right whatsoever on his wealth. Profit generated by such dishonest political maneuvering is immoral. In a system of government such businessmen are working not to serve their consumers but only to serve the politicians and bureaucrats who help them in restricting the market competition. They actively lobby government so to establish their monopolies in the market. Through these monopolies then they fleece the consumers. And because their profit depends on exploiting the political system they don't care about their consumers. In fact they go to any length to harm their consumers for making such illegitimate and immoral profits. 

This type of system is historically known as 'fascism' and sadly in today's world most of the businessmen, especially the big business houses are making their fat profits by this way only.

If Mukesh Ambani (also Ratan Tata and all others) is doing his business in cahoot with the government officials then his profit is illegitimate. If one day India becomes truly a free country then he should be stripped of his illegal profits (property) and should be convicted and punished for his crimes against the people. He and all such dishonest business tycoons should be incarcerated, may be hanged.       

Conclusion

Looking at these economic facts, if Tata and Mukesh both are honest businessmen and they really want to help people of this country then instead of  allocating their profit to the poor people they should use that capital in producing top quality goods at the lowest possible price. They should try to provide as many economic goods as possible to people of India through market competition. Tata and Mukesh both can profit by serving the needs of poor people. There exists a thriving market even in remotest rural poor areas of the world as C. K. Prahalad has shown. All capable entrepreneurs (existing and new ones) should provide top quality private schools, hospitals, private roads, electricity, water works, sanitation, home etc. goods in these areas at the lowest possible price. That will be the best possible moral way of making a difference in poor peoples' lives; that is the only way in which these entrepreneurs can help the poor in mitigating their hardships. Allocation/redistribution of wealth will only result in misery for all of us.   

the need of the hour : CEO Coach

The SME Industry is owned and managed by the family members.

Most likely the family members have not been educated and trained by Management Schools.

Now they hold important posts in the organization and are learning business management in the school of Hard Knocks, a very costly process.

There is a need for CEO Coaches says Rohan Mistry, President of BIA.

More

4PL intervention

Signs that your company may need a 4PL intervention

Diebold outlines its strategy for selecting a fourth-party logistics provider (4PL)

By David Hannon -- Purchasing, 2/11/2010 2:00:00 AM

In 2006, the senior management at Diebold established an aggressive set of cost savings goals as part of its Smart Business 200 program. And the Canton, Ohio, company's supply chain organization was expected to contribute a significant portion to the $200 million savings goal through consolidation, optimization and process improvements.

"We knew the opportunity was there but we didn't have the scale of resources or the access to industry best practices" to meet those goals, says Paul Dougherty, strategic procurement manager in Diebold's global procurement organization. In short, he knew Diebold needed outside help and brought in a fourth-party logistics provider (4PL), Menlo Logistics, to do a full supply chain assessment.

What were some of the signs that led Diebold to a 4PL model? Among the concerns Diebold had was its ability to obtain realtime, detailed visibility of its storage, distribution and inventory footprint. "This was a critical indicator that we needed assistance in re-tooling our network," says Dougherty. "We actually used to have a map on the wall in one of our procurement conference rooms that depicted each known storage location marked with a pin. There were literally hundreds of excessive, disparate stocking locations with limited or no real-time visibility of inventory positioning, turnover cycles or valuation."

Diebold also lacked the Lean resources that a company its size required to quickly drive improvements in its supply chain. The main factor in selling an outsourced 4PL model internally, says Dougherty, was evaluating how the supply chain aligns to Diebold's core mission. The question was if it would be better to acquire an experienced in-house staff or outsource those functions?

"We had to ask how long would it take to develop and deploy global in-house capabilities and at what cost," says Dougherty.

Based on evaluation of this core mission alignment and a mandate to achieve aggressive savings goals, Diebold chose to have the infrastructure services provided by a 3PL and the more strategic initiatives developed and implemented by a 4PL. To guide its 4PL implementation, Diebold established a Logistics Directorate team with extensive experience across the supply chain.

"Today, the map we used to have on the wall is gone and we have consolidated most of that inventory into two distribution centers using a warehouse management system with detailed visibility at the transaction level," says Dougherty.

The primary objective of Menlo's 4PL work is to drive bottom line, year-over-year net cost reductions to Diebold while improving its service levels, which is no small task. "There was a lot of low hanging fruit at the outset and the initial emphasis was consolidating inventory and establishing a flexible, cost-effective, distribution network," says Dougherty.

Gradually, Diebold placed increased reliance on its internal expertise to manage its regional warehousing while looking to Menlo 4PL for continuous engineering improvements to the supply chain network design. The allocation of specific duties is a collaborative effort based on constantly evolving requirements.

As with any service provider, tracking the return on investment of Diebold's 4PL engagement is a key factor. According to Dougherty, ROI on the project is tracked via achievement of annual savings targets.

"At the outset of our 4PL relationship with Menlo, annual savings targets were incorporated into the service contract," Dougherty says. As savings initiatives are developed, they are vetted through the Diebold logistics and finance teams for approval. Once a project has been approved, it is loaded into the Smart Business 200 database for tracking and administration.

Menlo holds a weekly meeting with Diebold's logistics, finance, and procurement teams to track the progress of multiple savings projects. Realized and forecasted annual savings are monitored and validated against Menlo's annual goal. To date, Menlo has successfully achieved its annual savings goals.

What exactly is a 4PL?

According to Carl Fowler, senior director of business development at Menlo Logistics, a 4PL functions more like an internal logistics organization, whereas a 3PL may focus on specific logistics activities. "Think of a 4PL as an orchestra conductor, working to bring together the best-in-class components of a world-class supply chain," Fowler says. "We consider ourselves a part of the company's supply chain, not a vendor in the list. It's creating a strategy and implementing it."

A 4PL is tasked with "unraveling the supply chain," says Fowler, with three specific goals:

• Driving the spend of improvement for the organization

• Increasing the supply chain competency

• Waste elimination

"Cutting cost is not solving the problem, but it lets you fund the broader strategies that drive long-term improvement," says Fowler. "A 4PL engagement has to be handled differently."

You might need a supply chain intervention if...

To find out if your organization needs one, read the checklist now on Purchasing.com/logistics.