Showing posts with label Delhi NCR. Show all posts
Showing posts with label Delhi NCR. Show all posts

Wednesday, November 8, 2023

Delhi - gasping for breath

Pollution has been a key challenge for 70 million plus people living in the National Capital Region (NCR) for more than two decades. People have been suffering from the consequences of air, water, and noise pollution. In the past decade, in particular, air pollution in the autumn and winter months has become a major crisis.

Wednesday, February 8, 2023

Bhatura vs Burger

Total apathy of common Indians towards intellectual property rights (IPR) of the originators is appalling. Use of pirated software, photocopied books, and spurious books sold on traffic signals and footpaths, unauthorized copies of branded clothes etc. is unapologetically common. Propriety and ethics are not taught in schools. It is common to see parents encouraging their wards to buy the “cheaper” alternative regardless of its legality and authenticity. Many cities have infamous “markets” for pirated software and duplicate merchandise.

The disdain shown by a large majority of the population could easily be listed as one of the major inhibitors of faster growth in India. It discourages innovation at the domestic level; motivates the innovators to immigrate to foreign shores and register their innovations there; and adversely impacts the transfer of critical technology by the foreign innovators to their Indian collaborators and entities.

If you are living in Delhi NCR region and travel to nearby UP and Haryana towns, you could easily spot “Bhatura King”, a fast food joint chain. The name and logo used by this chain is cannily similar to the global chain of quick service restaurants, “Burger King”. On a 25 kms stretch from Hapur to Garh Mukteshwar, there are at least 50 Shiva Dhaba, each claiming to be the “original”. There are over 50 Gulshan Dhaba, each claiming to be “original” between Mathura and Palwal. Panchhi Petha is a world famous brand of Agra. In Agra city itself there are over 500 shops claiming to be original Panchhi Petha stores. Similar is the story with Bikaner Sweets and Aggrawal Sweets.

Given this background, the reaction of investors to the news of Unilever Plc hiking royalty to be charged from its Indian subsidiary Hindustan Unilever Limited (HUL) is understandable.

On 19th January 2023, the Board of HUL approved a hike of royalty from 2.65% of net sales to 3.45%. The hike of 80bps is to be implemented in a phased manner over three years from 2023 to 2025. The stock of HUL corrected over 6% on 19-20th January with very high volumes.

Many investors, analysts and other commentators criticized this hike in royalty as unfair. I do not support this criticism and find the transaction transparent and reasonable. It is pertinent to note, in this context, that—

·         The present agreement of royalty payment was signed between Unilever Plc and HUL in 2013 and is subject to revision every ten years.

·         The royalty payment is on two counts – (i) Technology Collaboration Agreement (TCA); and (ii) Trademark Licence Agreement (TMLA). The TCA provides for payment of royalty on net sales of specific products manufactured by HUL, with technical know-how provided by Unilever. The TMLA provides for the payment of trademark royalty as a percentage of net sales on specific brands where Unilever owns the trademark in India including use of ‘Unilever Corporate logo.

·         Unilever Plc runs a strong R&D program focused on product innovation, climate control and operational efficiencies. In the past 10yrs, Unilever Plc has been able to reduce its CO2 emission from over 100kg per ton of production to less than 40kg/ton. It has reduced total waste sent for disposal from 4kg per ton of production to less than 1kg/ton. Using the technology and methods developed by Unilever Plc, HUL has also become coal free across its operations; has reduced CO2 emission by 94% since 2008; cut waste generation by 54%. It aims to attain zero emission status by 2030. Obviously, these developments do not come for free.

·         In FY22, HUL paid a total of Rs8.39bn in royalties to its parent Unilever Plc. The total net sales of HUL for FY22 was Rs525bn. This comprised Rs6.52bn on account of technology and Rs1.87bn on account of brand licensing. The brand royalty (TMLA) thus was about 0.35% of the total FY22 net turnover of HUL.

·         Unilever Plc spent GBP847mn on R&D activity (1.61% of turnover) and GBP6.9bn (13.1% of turnover) on brand and marketing activities in calendar year 2021.

In my view, to develop a strong innovation ecosystem in the country, it is of utmost importance that a concerted effort is made (i) to develop respect for IPR of other amongst citizens from early age; and (ii) develop consciousness amongst entrepreneurs to protect and develop their IPRs to maximize their revenues from their respective enterprises. Bhatura is definitely more popular in India than burger. It need not be presented as a poor clone.