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14th January 2001
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Heading for a downturn 

By Feizal Samath
Sri Lanka's corporate sector is heading for a downturn this year due to high interest rates, galloping inflation, lower export growth and increased war spending among other negative factors, analysts said.

"It's a bit of a gloomy scenario this year with the stock market already taking a beating in the past few days and the rupee weakening," said one analyst, speaking after the Central Bank pegged the selling rate of the rupee to 85 rupees per US dollar on Friday.

Turnover at the Colombo bourse has been averaging a low Rs. 2-3 million per day since the beginning of January - except for two huge transations last week which saw turnovers soar to the Rs. 100-200 million levels. Daily turnovers at the bourse last year averaged around Rs. 20 million

Government economists are projecting economic growth this year at around 5 percent compared to last year's 6 percent but private analysts expect growth rates to be around 4 1/2 percent.

Many economic sectors have taken a beating in the past few months due to interest rate and fuel hikes and many of Sri Lanka's conglomerates are slowing their growth projections and expansion plans. "What expansion at such high interest rates? The cost of finance is making it difficult for small companies to survive," one company director noted.

While diesel prices have nearly doubled to 24 rupees per litre at the end of December 2000 from 13 rupees per litre in January of the same year, interest rates have risen to between 18 to 20 percent from around 15 percent earlier.

Economists said exports - the driving force in the Sri Lankan economy last year - has also been hit with an economic slowdown in the United States, Colombo's biggest garments' buyer and trading partner.

Exports grew by 20 percent last year but is set to be much lower in 2001. Analysts said the rupee had been devalued by between 11 percent to 14 percent last year, ending 2000 at 83 rupees (the Central Bank selling rate) per US dollar from 72.85 rupees earlier in the year.

Corporates are also expected to come under wage pressures as the cost of living rises and amidst worries that private sector trade unions are being controlled by the Janatha Vimukthi Peramuna (JVP).

"There are concerns in the private sector that the JVP has strengthened its hold on trade unions in many companies and could organise work stoppages to back demands for wage increases," an analyst said.

The JVP, the country's largest leftist party, has announced plans to launch a countrywide campaign against the high cost of living and a possible shutdown or general strike.

Commodities including tea and rubber are also unlikely to perform - pricewise - as good as last year, eating into the profitability of the country's top three conglomerates - John Keells, Hayleys and Aitken Spence.

Tourism - also a key component of earnings of the top three companies listed at the Colombo bourse - is also hit by lower arrivals primarily due to an uncertain political scenario.

Analysts said hopes of an early peaceful resolution of the ethnic conflict has been dampened by slow progress in the Norwegian-backed peace process.


External sector deficit lower

Sri Lanka's balance of payments this year is expected to show marked improvements in the trade balance and the current account deficit resulting in a reduction in the overall deficit, the Central Bank said.

It said in a statement at the weekend that the trade balance in the current year 2001 would improve from a deficit of US$ 1,832 mln to US$ 1,514 mln.

Exports are set to rise by 10 percent whereas imports are expected to increase only by 3 percent. Continuous expansion of garment and tea exports are expected to influence this outlook.

On the import side the petroleum import bill is expected to decline from US$ 895 mln to US$ 784 mln largely due to lower crude prices, the bank said.

"The current account therefore is expected to improve from a deficit of US$ 1,102 mln in 2000 to US$ 799 mln in 2001 with private remittances expected to keep growing. As a percentage of GDP, the current account deficit will decline from 6.7 percent to 4.6 percent," the bank said.

In the capital account, foreign direct investments are expected to improve from US$ 202 mln in 2000 to US$ 474 mln in 2001 while long term capital inflows to government are expected to increase from US$ 486 mln to US$ 560 mln.

According to latest estimates, the overall balance of payments deficit would be cut by more than half from US$ 516 mln in 2000 to US$ 228 mln in 2001.

"This significant improvement in the external payment situation is expected to help economic growth targeted at about 5 to 6 percent this year and also help to stabilise monetary and exchange rate policies. Such stability should help to moderate the current high levels of interest rates in the country during the early part of 2001," the statement noted.


Entrepreneurs to meet PM 

A group of industrialists from Sri Lanka's private chambers are meeting Prime Minister Ratnasiri Wikremanayake on Wednesday to discuss crucial issues facing the country's industry and private sector, business sources said.

They said the planned meeting follows discussions held recently between the chambers and Industrial Development Minister Prof. G.L. Peiris on ways of improving industrial growth in the country.

In a separate appeal on Friday, a leading chamber group urged President Chandrika Kumaratunga and Opposition leader Ranil Wickremesinghe to arrange meetings to discuss a crucial document developed by the business community.

The Joint Forum of Chambers of Commerce and Industry, employers organisations and trade organisations of Sri Lanka appealed to the President to arrange a meeting to discuss "The Way Forward Strategy" presented by the group.

The group said it was an opportune time to discuss this document - presented to the president and the opposition leader soon after last October's general election - in view of the government budget due to be presented in February or March.

Group sources said there was no response to an earlier appeal to the president and the opposition leader to discuss the non-partisan document which deals with partnership networks for development, a framework for private sector development, a national economic development plan and priority issues for action. 


Phone gadgets hit the street

On a walk down some of the main city roads, you might catch sight of cellular phone accessories, or probably you might have not noticed it because the industry is so well spread that these accessories are common. Cellular phone accessories were previously luxury items that one might have to visit shopping malls or showrooms to purchase a hands-free unit. Now virtually any accessory you name is available at little stands by the roadside. 

Hands-free units, batteries, leather covers, car chargers, phone holders are available from as little as Rs. 250 to Rs. 900. What's more, even anti-radiation stickers which are relatively new to the market are available at almost half the showroom price. 

One trader said that he commenced this business on his own initiative sourcing products from Fort merchants and others who travel to Singapore. On average his daily earnings is as much as Rs. 500 during business seasons. Most traders locate themselves strategically near phone companies where one would be able to see the difference in prices. 

Accessory showroom dealers are of the view that factors such as quality vary with these products. Some of these dealers have now moved from an all-round sourcing based on price to signing up agency agreements. They also now offer values such as guarantee periods from three months to a year on their products. 

However, a basic accessory such as a hands-free unit which authorities wanted to promote towards safe driving is now available within the common man's reach at about Rs. 400.


Stay order for Bank software disclosure

A tussle between the Customs and Sri Lankan commercial banks over the imposition of duties for software imports, intensified last week after a Colombo court ordered a temporary stay order against the Customs.

The order was issued by the Court of Appeal following an application by Hatton National Bank (HNB) protesting the duty levy.

Late last year, Customs requested HNB, Sampath Bank and Commercial Bank to disclose details of all their software imports for the past 10 years in a move that stunned not only the banking sector but also other key importers of software.

The attempt gave rise to speculation that the government planned to impose a tax on software imports with a possible penalty on past imports. The Sunday Times Business also learned that the Customs has written to Citi Bank asking for disclosure on software imports on 12 January.

In a surprise move some weeks ago, Customs raided the Commercial Bank and obtained software diskettes and documentation for investigation purposes.

The bank hit back, filing a petition in the courts and securing a stay order halting the investigation. Banking sources said software is not found in any customs schedule as an taxable item and that software is not taxed in any country.

"Software is not a merchandise, it is an intellectual property. To tax it is like taxing the knowledge of a person," said Ajantha Coorey, a lawyer who appeared for HNB.

Since software cannot be valued in the same terms as merchandise, banks say that the Customs will attempt to tax the licensing fee for the software. The licensing fee normally ranges between US $1-.2 million for a bank.

Banking officials said they were reluctant to part with the information regarding the software systems since they are confidential files.


Mind your business

CSE losing interest
Rising interest rates may be a boon for investors but it is a definite deterrent at Colombo's stock market which is now slow and sluggish.

And the worst hit are brokers who are finding it hard to sustain overheads with no market revival in sight.

Their plight is assuming crisis proportions now, with at least two of them considering putting up shutters...

Spreading gas
The economy may be in the doldrums but there are still sectors which can be very, very profitable.

The distribution of gas is one of them and since the monopoly ended in December, many an overseas investor has been to the country prospecting an entry into the sector.

As a result, it is now very likely that when the next year begins, we will have seven or even eight gas distributors serving the market...

War of funds
Norwegian mediators may come and go but the war goes on.

And the projected war expenses for this year will be colossal, necessitating spending cuts from other ministries.

The boys in the Treasury have been given the difficult task of deciding which ministries and which specific projects should suffer the burden and hectic lobbying is going on these days by politicos to endure that their funds do not get pruned...


Higher inflation in 2001

Inflation is likely to be one of the in tractable problems of the economy this year. All indicators point to a high rate of inflation this year. The depreciation of the currency, the large fiscal deficit releasing inflationary pressures, the continuing high interest rates, likely further upward revision of administered prices, reduced output of rice and higher international prices for basic consumer imports are all likely to raise domestic price levels.

Last year ended with a high rate of inflation in December. Part of the impact of the price increases induced by the several factors mentioned earlier was felt last December, when the Colombo Consumers Price Index rose by 4.1 per cent in the single month. This was not a seasonal rise in prices. It was the beginning of a new trend of a rising rate of inflation induced by the increased prices of diesel and other imported items. This trend is likely to continue and gain momentum over the next few months.

Diesel prices were increased several times last year. The total increase in diesel prices amounted to as much as Rs. 11 per litre. The significance of this price increase is that it has an impact on many locally produced goods as their transportation costs rise. In fact past experience teaches us that the price increases of commodities are much higher than warranted by the fuel price increase. This is bound to happen this year too. Owing to the increase in diesel prices bus fares have been raised by 15 per cent thereby increasing the daily commuting costs of workers.

Prices of many locally produced food items are likely to rise this year owing to the fuel price increase. There are other reasons as well for locally produced food items to increase in price. Rice prices, in particular, are expected to rise, as the paddy crop is expected to be lower than even last year's reduced production. The depletion of imported rice stocks and a shortfall in rice production last year are likely to lead to a lesser rice availability this year. The Maha harvest of this year is expected to fall further. Consequently, rice prices are likely to increase.

The up-trend in consumer prices is likely to continue due to the lagged and indirect effects of developments of last year, such as the high interest rates and increased price of fuel, the continuation of new inflationary pressures, such as the likely continued depreciation of the currency, and adverse developments in the economy such as higher prices of locally produced goods.

Further changes in administered prices could also be expected owing to the inability of the government to sustain losses through subsidization due to the widening fiscal deficit. The shortfall in government revenues implies a need for higher tax measures this year. The response of the government to the shortfall in GST revenues may well be an increase in the GST rate. The imposition of higher taxes would also raise the price level.

Although there is a prospect of international crude oil prices declining this year, this is unlikely to result in lower fuel prices in the country.

Already average crude oil prices have fallen to around US$ 23 per barrel.

Prices are likely to remain at this level for most of the year. It is however very unlikely that the government would reduce fuel prices owing to the difficult fiscal situation of the government. The depreciation of the currency too would raise prices in rupee terms Therefore consumers cannot expect fuel prices to be reduced in line with international price declines.

The burdens of the higher consumer prices would fall heavily on the poorer sections of the people, as prices of basic necessities are likely to increase. One of the characteristics of prices in Sri Lanka is that basic living costs are comparatively high, compared to our neighbouring countries of South Asia.Basic living costs are also quite vulnerable to international price changes as well as fiscal conditions and the balance of payments situation. Further, as basic living costs are a very high proportion of average incomes, increases in the costs of living are a heavy burden on the poor and the middle classes.

It is very likely that there may be demands for higher wages too this year. This may in turn spark off strikes and work stoppages, which would in turn affect production and economic growth.

The rise in consumer prices that has just begun is likely to have many unfavourable repercussions during the year. It is important for the government to find ways and means to contain the price increases before they feed on each other and enervate the productive capacity of the country.


Mind your e-business

Laws of running an e-commerce enterprise - A marketer's perspective
By Nuwan Dassanaike
Ever since the first dot-coms took the old economy by storm (Hmmm.... I refer to Amazon, Yahoo and the types!) in the last 36 months or so, there was so much hype that anyone and everyone believed that they can be successful by jumping the dot-com bandwagon. Sir Isaac Newton has aptly shown us that what every thing that goes up. . . must come down ( . . . or words to that effect!). Therefore the dot-com crashes in the U.S. didn't come as a surprise to many old economists...

Fact is stranger than fiction. Although dot-coms aren't as hot as it was from a conservative venture capitalist perspective, we keep hearing of web centric successful business model that makes the global stock exchanges like NASDAQ, FTSE and HANSENG jolt .

Hence being progressive never really killed anyone (Hopefully.). Therefore in order to be a successful dot-com, the centre of your business model (THE WEBSITE. . .) has to be up there with the world's best...

So here are five laws of Marketing a web site

1. The Law of the Dead End Street

The first law goes like this: Setting up a website is like building a storefront on a deadend street. If you want any shoppers, you must give them a reason to come.

You've heard too many times "If you build it, they will come." We know that doesn't work on the Internet. But why do novices again and again build websites without the least thought to a viable marketing plan? Maybe it's because FrontPage promises you a "professional looking site" and Microsoft hasn't yet offered WebMarket 2000. (Don't worry, they probably will pretty soon. Hi, Bill!)

The most wonderful site in the world is wasted unless people stop by to admire and purchase. It's the same reason that most great craftsmen aren't millionaires, they've learned to make a great product, but don't have a clue about marketing.

So the first question you need to ask yourself, even before you build your enterprise's site, is: How will we get people to visit? Perhaps your marketing plan will look like this:

Banner ads for two months to boost name recognition.

Search engine positioning on HotBot and Excite in the first quarter, to include Infoseek, Lycos, and AltaVista in the second quarter.

Reciprocal links with our industry organization and a paid listing in their directory.

A newsworthy contest in the third quarter, for which we'll try to get full media coverage through press releases and calls from a PR agency.

A company newsletter that carries industry news rather than just company driven, to begin in the fourth quarter (though you should start collecting e-mail addresses now).

Afterwards decide which of these activities to carry out in-house and which to outsource, attach a dollar value to each, and provide for them in your marketing budget. Your marketing plan may look much different than this, but you must give visitors a reason to come.

Many sites that have failed in terms of revenue via visits (THE EYEBALL EFFECT!) are pretty slim. Yes, they give information about the company and its services, but nothing you'd want to bookmark. What compelling content can you put on your site that will make someone want to return? Content is primary.

With excellent content, when you ask for a reciprocal link, you don't have to plead, "Link to us because we're the greatest." You can say, "Link to us because we offer everything a buyer needs to know to select the right lighting fixture." When you offer a public service, you suddenly become newsworthy. Trade journals and magazines begin to mention you, and traffic follows. Give visitors a reason to come, and they will.

2. The Law of Giving and Selling

An important element of Web culture is "free stuff." The Law of Giving and Selling says: Attract visitors to your site by giving away something free, and then try to sell something additional to those who visit.

You've seen this scenario played out in countless brick-and-mortar stores. "Free wool scarves to the first 50 people who visit our store for our annual One-Day Ski Sale on December 1." Give them something free, then try to sell them something.

Here's the simple strategy to tollow: (I) Attract people to your site by giving away lots of free information. Then (2) let people know about your products and services. Learn this rhythm of giving something away and selling something. The strategy works. But to sell, you need to master a third law

3. The Law of Trust

Assuming your products or services are priced competitively and are of good quality, your most significant sales barrier is trust. Trust is the essential lubricant of Web business, without trust, business grinds to a halt.

An established store brand name comes from hundreds of positive impressions built by expensive advertising campaigns. These ads purchase brand trust. But if you're a small business you can't afford such advertising. Nevertheless, you can build trust by means of your website in multiple ways. First, anchor your business in time and space by giving a full address and phone number. If you have an office or brick-and-mortar store, show a photograph. Better yet, show photos of yourself or your staff. Now your customers view you as real people rather than some faceless entity who-knows-where.

You build trust by selling well-known brand name products, by displaying clear shopping and return policies, by joining nationally-respected organizations, and by offering guarantees. You build trust with a customer-friendly navigation system and intuitive interface, and an SQL secure server for credit card transactions. You gain credibility by having a professionally designed site, rather than something your teenage son cooked up on the weekends.

Once you've established trust, sales result. You also build trust by repeated contact with your visitors. This is described in the fourth law.

4 The Law of Pull and Push

The Fourth Mutable Law of Web marketing is: Pull people to your site by your attractive content, then push quality information to them regularly via e-mail.

Websites, by their very nature are passive creatures, like fireside dogs. They just lie there wagging their tail listlessly and smiling wanly until someone enters the door. (Then the best website dogs come alive and propel you to the desired destination and action.)

E-mail messages, on the other hand, are active animals like St. Bernard Rescue Dogs, always ready to go where you send them and deliver a refreshing cask of information, and an invitation to return to your website to see the newest thing you have to offer.

A website tries to attract you by pulling you in with the promise of content, while e-mail pushes its message into your previous visitors' mailboxes. Most businesses can't survive on one-time sales only. 

The cost of customer acquisition is too high for just a single sale. They need to draw satisfied customers back again and again for repeat sales. The Law of Pull and Push accomplishes this vital task.

Getting an invitation to send e-mail to your visitors is key to this strategy. Include a form that will collect their e-mail address. To convince your visitor to give you his e-mail address, however, you need to promise two things: (I) that you'll e-mail him something of value, and (2) that you won't sell or rent his address to another company, hence the need for a clear privacy policy. But once the visitor has given you permission to e-mail additional information, you have wonderful marketing leverage.

This law, too, has its own rhythm. Pull the customer to your website by attractive power, then push good content and offers to the customer via e-mail to draw them back to your site 

5. The Law of the Niche 

The Law of the Niche is last but not least. Let me state it this way: Big businesses like Amazon.com and Wal-Mart have the money and clout to "own" whole segments of the marketplace. Small businesses succeed by finding niches that are either unfilled or only partially filled, and filling them with excellence.

For example, JustBalls.com.(http://www.justballs.com) saw an unfilled niche in selling sports equipment. Instead of trying to bite off more than they could chew selling the whole range of sports equipment, they looked for a single slice balls and set up "The Biggest Ball Store on the Net." They sell sports balls, fitness balls, toy balls, and ball stuff You'll find baseballs, softballs, footballs, volleyballs. If it's a ball they have it. When you think "balls," they want you to remember them, "JustBalls.com" and come to their site. They also own the URLs for Justbaseball, Justfootball, Justbasketball, Justlacrosse 27 different sports in all in case they want to expand their marketing by sport by sport.

Unique Selling Proposition

The key to this kind of savvy niche marketing is to carefully write a business plan that defines your Unique Selling Proposition (USP). This is best stated in a sentence or two. It defines what makes your business unique from every other competitor in your field. It spells out the precise niche you seek to fill, and how you aim to fill it.

Jim Medalia, the owner of JustBalls.com says that their USP is probably something like this: "Justballs is committed to being the absolute best and most comprehensive source for balls on the Web. We provide excellent customer service by purchasing, warehousing, and shipping the products ourselves, rather than relying on a distributor to drop-ship for us."

Contrast that to a phone call received by the Website development firm last month from a wannabe Web proprietor, who asked how much, it cost to set up an online store.

When asked, "What kind of products do you plan to sell in your store?"

Came the answer, "Some books and electronic consumer goods,"

"Oh!" replied the consultantcy trying to visualize this Internet newbie going toe-to-toe with Amazon.com and Wal-Mart.com

When explained the Law of the Niche. "Those niches are pretty well filled already." When the consultants say, as gently as they can. "Perhaps you need to define your niche more precisely. What kind of books would you like to offer?" 

"Books on building high quality audio systems for maximum performance." (That's what the consultant wished the caller had said. Actually, he answered, "Ah...." and the call didn't last much longer.)

You see, it is conceivable to build an information centre on high quality audio systems that would attract many people in this niche market. You'd offer every book in print. You'd link to articles. 

You'd host an e-mail discussion list. Perhaps you'd even sell a line or two of components that match this carefully defined clientele. If you developed it with real excellence, the chances are good that you could carve out a profitable business.

But something as nebulous as books and electronic consumer goods? Not going to happen. It lacks a carefully crafted USP.

To succeed in any business on the Web, on the street, by mail order, in an office building, any business you need to spell out your precise USP. With a USP you can succeed. Without a USP you don't have a prayer and that from someone who believes strongly in the power of prayer!

The Law of the Niche isn't any more or less important than the other Immutable Laws of Web Marketing. They're all important. Together they offer you a path towards creating a successful business on the Web.

Hence being the best means. . . Playing the big leagues with the bigies. . . Therefore it is good to keep these in mind. . . Just In Case.

Good Hunting! Good Marketing!

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