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The Power of Admitting Your Own Errors-Like Tom Brady? Michelangelo on Poverty, Creative Integrity, and the Right Not To Be Interrupted – Bamboo Innovator Daily: 31 Jul (Fri)

Life

  • The Power of Admitting Your Own Errors-Like Tom Brady? WSJ
  • Michelangelo on Poverty, Creative Integrity, and the Right Not To Be Interrupted: BP
  • 5 easy steps to building a phenomenally successful career in any field: Be deeply curious about advancing in your field. Learn how to get the people around you to do the best they can. Care deeply. BI
  • Programming for four-year-olds: How to teach computer science in nursery school: Economist
  • This one-minute morning routine can improve your productivity all day long: BI
  • The ‘cookie monster’ study reveals how power corrupts people: BI
  • Want to be president? Show us how you’d handle a disaster. WaPo
  • I just binge-read eight books by Donald Trump. Here’s what I learned. WaPo
  • Never too early to start succession planning in a family business; From the moment the Yung Kee restaurant sold its first goose in Wellington Street, Central, in the 1960s, its founder Kam Shui-fai groomed two of his sons for management roles. Following his death, the younger son Ronald Kam Kwan-lai underhandedly stripped the eldest son Kinsen Kam Kwan-sing of his management role at the restaurant: SCMP
  •  7 scientists who are helping us understand how the world works: BI
  •  8 classic novels that will make you a better leader: BI

Books

  • The Resilient Enterprise: Overcoming Vulnerability for Competitive Advantage: Amazon

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“Immerse yourself in the common ground of the universe so that your true voice – not the egoistic voice that clamors vainly for power (for it will ruin you if you listen to it) – your authentic voice may be heard.”; 9 books that will inspire your kids to build, invent, and engineer – Bamboo Innovator Daily: 30 Jul (Thurs)

Life

  • “Immerse yourself in the common ground of the universe so that your true voice – not the egoistic voice that clamors vainly for power (for it will ruin you if you listen to it) – your authentic voice . may be heard.”: BP
  • 9 books that will inspire your kids to build, invent, and engineer: BI
  • LinkedIn founder Reid Hoffman shares 3 lessons he learned from the failure of his first company: BI
  • The Power Of Words: GF1, GF2
  • Poland’s wealthiest entrepreneur, Jan Kulczyk, dies, aged 65; Jan Kulczyk, who played a central role in Poland’s post-communist transformation has died, aged 65, after complications following surgery: FT
  • Unlocking the Three-fold Secret to Great Leadership: K@W
  • The First Step to Successful Innovation? Choosing the Right Partners: K@W
  • Organizational Culture: The Payoff Is in the Blend: CFO
  • Today’s Exhausted Superkids: NYT
  • That ‘Useless’ Liberal Arts Degree Has Become Tech’s Hottest Ticket: Forbes
  • The non-business classics that inspire; works of fiction, biographies and histories can offer solid career and business advice to the ambitious because they are more reflective of the deeper human psyche: FT
  • Shareholder value is a cover for over-mighty chief executives; The critique of dividends and buybacks by the BoE’s Andy Haldane begs a vital question: FT
  • How Intelligence Shifts With Age; We seem to get slower and wiser at the same time: WSJ
  • 3 common words that make you sound rude in emails: BI

Books

  • The Folly of Fools: The Logic of Deceit and Self-Deception in Human Life: Amazon

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‘Shark Tank’ investor Kevin O’Leary shares the best advice he received in his 20s: “To be or not to be?” isn’t the question. The question is: “What are you willing to do in order to be what you want to be?” You have to want to do all the necessary difficult things that are required to support that goal; The Structure of Gratitude; G. K. Chesterton wrote that “thanks are the highest form of thought, and that gratitude is happiness doubled by wonder.” – Bamboo Innovator Daily: 29 Jul (Wed)

Life

  • ‘Shark Tank’ investor Kevin O’Leary shares the best advice he received in his 20s: “To be or not to be?” isn’t the question. The question is: “What are you willing to do in order to be what you want to be?” You have to want to do all the necessary difficult things that are required to support that goal. BI
  • The Structure of Gratitude; G. K. Chesterton wrote that “thanks are the highest form of thought, and that gratitude is happiness doubled by wonder.”: NYT
  • How To Build Your Resilience To Be An Entrepreneur: Forbes
  • ‘Shark Tank’ investor Kevin O’Leary’s 5 best business mantras: BI
  • A 2004 email from Jeff Bezos explains why Powerpoint presentations aren’t allowed at Amazon: The reason writing a 4 page memo is harder than “writing” a 20 page powerpoint is because the narrative structure of a good memo forces better thought and better understanding of what’s more important than what, and how things are related. BI
  • Why most definitions of leadership are wrong: BI
  • Why Leaders Should Create Meaningful Environments; Organisations that empower and give meaning to their members are not only more dignified but also more innovative. BI
  • How great leaders create conditions for performance; The best leaders start with caring, then create the “right” emotions for success. Nation
  • How This Mom Built a $10M Pest-Control Business From Home: Forbes
  • 5 Big Mistakes Poor Negotiators Make: Forbes
  • How to borrow some of the start-up genie’s magic; Working with accelerators and incubators can help established companies: FT
  • This Italian company pioneered innovative startup culture—in the 1930s: qz
  • Mark Cuban just praised Donald Trump for being ‘the best thing to happen to politics’ in recent history: He gives honest answers rather than prepared answers. This is more important than anything any candidate has done in years: BI
  • ‘Impossible’ propellantless engine appears to work despite breaking laws of physics: TheAge

Books

  • Rising Strong by Brene Brown: When we deny our stories, they define us. When we own our stories, we get to write the ending.: Amazon
  • Stronger: Develop the Resilience You Need to Succeed: Amazon

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To master any skill, use the learning technique that scared Bruce Lee; 13 secrets for performing better under pressure – Bamboo Innovator Daily: 28 Jul (Tues)

Life

  • To master any skill, use the learning technique that scared Bruce Lee: qz
  • 13 secrets for performing better under pressure: BI
  • David Politis of BetterCloud: Start by Working Beyond Your Résumé; “Whether it’s a company or a market, go where you can actually have a real impact on the business” : NYT
  • The music you like says a lot about how your brain processes information: BI
  • The Ten Golden Rules of Leadership: Classical Wisdom for Modern Leaders: Farnam
  • Love of learning is the key to success in the jobless future: WaPo
  • Not an Introvert, Not an Extrovert? You May Be An Ambivert; Sometimes social, sometimes solitary, ambiverts often make good sales people: WSJ

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Being Strong and Resilient in a World Where Things Go Wrong: The Case of Mahindra & Mahindra, a Different Sort of “India’s Berkshire Hathaway” – Bamboo Innovator Weekly Insight

 “Bamboo Innovators bend, not break, even in the most terrifying storm that would snap the mighty resisting oak tree. It survives, therefore it conquers.”
BAMBOO LETTER UPDATE | July 27, 2015
Bamboo Innovator Insight (Issue 93)

  • The weekly insight is a teaser into the opportunities – and pitfalls! – in the Asian capital jungles.
  • Get The Moat Report Asia – a monthly in-depth presentation report of around 30-40 pages covering the business model of the company, why it has a wide moat and why the moat may continue to widen, a special section on “Inside the Leader’s Mind” to understand their thinking process in building up the business, the context – why now (certain corporate or industry events or groundbreaking news), valuations (why it can compound 2-3x in the next 5 years), potential risks and how it is part of the systematic process in the Bamboo Innovator Index of 200+ companies out of 15,000+ in the Asia ex-Japan universe.
  • Our paid Members from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing.
Dear Friends,

Being Strong and Resilient in a World Where Things Go Wrong: The Case of Mahindra & Mahindra, a Different Sort of “India’s Berkshire Hathaway”

“Deere John, I have found someone new.”

Deere JohnThis was the caption in a billboard ad featuring a blonde, pony-tailed American woman driving a little red tractor that was produced and sold by an Asian wide-moat innovator. The ad, done so with a humor designed to appeal to Americans,  was a tongue-in-check in response to Deere & Company (NYSE: DE, MV $30.8bn), the largest farm equipment manufacturer in the world, who promised a seemingly short-lived and desperate $1,500 cash rebate to any American farmer who traded in this Asian tractor for a John Deere. Only a handful responded to the offer. And the offer had the unintended effect of further promoting this Asian brand, who had overtaken Deere, New Holland (NYSE: CNHI, MV $12.4bn), AGCO (NYSE: AGCO, MV $4.6bn) and Japan’s Kubota (TSE: 6236 JP, MV $20.7bn) to become the largest tractor maker in the world by sales volume, selling about 234,000 tractors.

Would Buffett’s decision to invest in Deere change if he had known about the story of the Asian wide-moat innovator behind this ad? Buffett had disclosed in March 2015 that he had built up in 2014 a 5% ownership in Deere, which has paid steady or increasing dividends since 1987, giving it a streak of 28 consecutive years without a dividend reduction. Since this 2007 ad and losing the #1 title, Deere is up around 10%, underperforming the 40% rise in the S&P 500 index.

Mahindra & Mahindra (NSI: M&M) Stock Price Performance 1994-2015 Vs Nifty index and Deere

M&M

This Asian innovator is Mahindra & Mahindra (NSE: M&M, MV $12.9bn) who recently acquired a 33% stake in Mitsubishi Agricultural Machinery, a subsidiary of Mitsubishi Heavy Industries (TSE: 7011 JP, MV $19bn), for about $25m in May 2015. The popularity of M&M’s tractors stemmed from producing sturdy low-powered tractors (under-70 horsepower) suited for fragmented landholdings in India and China. M&M realized that there is an underserved market in the United States to which its low-powered tractor is well-suited: hobby farming. Baby boomers are retiring from stressful urban lives in California to places like Arizona where for the price of a luxury condo in San Francisco, they can buy over 15 acres of land, ideally suited to tilting by hobby farmers and suburban lawn masters who don’t need a monster tractor and like M&M’s reliability. Many of M&M’s customers in the United States are women, hence the “Deere John” ad.

Flying under the radar of Deere when it first entered US, M&M built close relationships with small dealerships, particularly family-run operations. Rather than saddle dealers with expensive inventory, M&M allowed them to run on a just-in-time basis, offering to deliver a tractor within 24 to 48 hours of receiving the order. M&M also facilitated financing. In return, Mahindra benefited from the trust the dealers enjoyed in their communities. M&M also built close relationships with customers. Some 10 to 15% of M&M tractor buyers got phone calls from the company’s president, who asked whether they were pleased with the buying experience and their new tractors. M&M also offered special incentives such as horticultural scholarships to neglected market segments such as female hobby farmers. Following the example of Hyundai Motor (KOSPI: 005380), which used especially long product warranties to gain acceptance in the American auto market, Mahindra offers a five-year warranty on its tractors in the US, compared with the standard two years offered by Deere. M&M has also rolled out a military appreciation program providing U.S. and Canadian veterans and their families with $250 rebates, with its website stating: “We appreciate your service and commitment to our country and would like to show our support.”

Anand“I call America our emerging market; they find it very amusing when I said that. Our goal was to say we are second to none in technology. We don’t want to be value for money tractor that is beating out John Deere and all. This product has incorporated auto technology in the tractor. If you look at electronics, suspension, ergonomics. The state-of-the-art knowledge of R&D we had in auto has come in to our tractors,” commented Anand Mahindra, the chief architect of the M&M Group, who describes his country’s malaise using the metaphor of “Star Wars”. Graft and cronyism in India are like an evil Empire that has struck back. His hope is that young Indians become Jedi knights to battle the Dark Side. Anand Mahindra has kept M&M away from industries that require “a competence for lobbying”, and he says he avoids Delhi, India’s capital, like the plague.

M&M was founded as a steel trading company in 1945 by K.C. Mahindra, J.C. Mahindra and Ghulam Mohammed, under the name Mahindra & Mohammed. Mohammed in 1947 migrated to Pakistan to become its first finance minister. M&M entered automotive manufacturing in 1947 to bring the iconic Willys Jeep on to Indian roads. Besides holding the #1 title for tractors, M&M is also the #1 SUV maker in India. Now, M&M is present across the entire automotive spectrum – two-wheelers, commercial vehicles, SUVs and sedans. Whether it is tractor or SUV or two-wheelers, the M&M brand is defined not by horsepower or engines, but instead by the fact that it stands for ruggedness, few frills, no-nonsense performance and an honest price tag. “M&M psychographically is about safe, strong, powerful, rugged vehicles, irrespective of the segments.”

Today, M&M is a diversified conglomerate who employs over 180,000 people around the world and operates in industries such as automobiles, defence, aerospace, information technology and BPOs, financial services, hospitality and retail; the automotive & tractors business continues to be the largest contributor at two-third of group revenue.

“We don’t call it a conglomerate, we call it a federation,” Anand Mahindra says. “If you look at a spectrum between General Electric and Berkshire Hathaway, GE is a conglomerate, one single monolithic company with divisions, Berkshire Hathaway has multiple investments. M&M is more Berkshire Hathaway than GE.” Anand focused on having independent presidents who would focus on their line of business, segmented in six areas: auto, technology, hospitality, retail, defence and aerospace, and steel. “These six new sub-entrepreneurs have made significant gains in their own wealth because they share the business,” Anand says. Anand looks for niches. It’s a contrast to the business strategies followed by some leading business houses in India. Anand cites the example of Reliance Industries – the company wants to dominate competition with its size. This is not M&M’s strategy. Also, there is a central pool of money that can be used in different businesses. In the M&M Group, each company has its own balance sheet and its own cash flow to fund growth. Anand’s mantra is not about winning all the time, but to ensure that failure does not cripple. Anand has the vision to build a live, growing organisation—one that can evaluate, incubate, build and scale up businesses continuously that can escape gravity and transcend boom-bust business cycles, even while the flops fall by the wayside. Each company is ring-fenced from the damage failure elsewhere can do, even while being free to finance its own growth and make its own mistakes, to grow and find its own capital without betting the whole ranch. M&M, the flagship, is the major shareholder and the spine of the structure – the lever that makes things work. Mahindra sees his role as group head to assess risk with a team. “Measured risk-taking is at the heart of entrepreneurship,” Anand says. M&M’s approach is “segmented strategy”. M&M’s annual War Rooms are where crucial go-or-no-go decisions are discussed and decided. These are high-powered forums meant for interaction with individual companies that form the Mahindra federation.

Anand Mahindra is J.C. Mahindra’s grandson. Anand Mahindra joined the group’s Mahindra Ugine in 1981 after finishing his MBA from Harvard. Businesses in India were governed by the licence raj, where the government would select five to six companies to make or sell in any segment. Mahindra Ugine, headed by Anand’s father Harsh, was one of the six players which had licence to make specialised steel products for electric arc furnaces. As Anand recalls, “It was a cosy market, and nobody cared that I had joined”. But suddenly, in 1981, the government gave licences to 36 players to make electric arcs. As a result there was excess competition, something which Indian business houses were not used to. Prices plunged and there was surplus capacity in the sector. Ugine did not cut price and sales plummeted and the company posted its first loss. “When all hell broke loose, it was an opportunity for somebody new,” Anand Mahindra says, who turned around the company gradually by selling inventory and squeezing the supply chain.

Anand went on to take over as head of the group’s flagship vehicle business in 1991, even though his uncle and K.C. Mahindra’s son, Keshub Mahindra, was still the chairman. When India liberalized in 1991 Mahindra was sprawling and flabby like many of its peers—making everything from jeeps to lifts. After liberalisation, there were rumours of M&M businesses winding up. No one thought that Indian automakers would survive with companies like Ford, Daewoo and General Motors coming to India. What Anand found at M&M’s vehicle manufacturing business shocked him: an almost complete lack of integration among the departments and the needs of the customer were completely ignored. In short, everything has gone wrong for M&M during that turbulent period.

the resilience dividendIn her fascinating book “The Resilience Dividend: Being Strong in a World Where Things Go Wrong”, Judith Rodin, president of The Rockefeller Foundation, recounted the well-known story of Anand’s near death experience – and resilience – in the day before the Diwali festival in 1991.

Anand was attempting to turn around the business…

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Interestingly, Anand has his own unique view about innovation as the engine to drive the M&M federation. Anand believed that low-cost innovation is essential for solving many problems facing India. Yet, he believed that the famous concept of “jugaad” should not be confused with frugal innovation:

“India desperately needs big innovations to address large-scale problems and make use of opportunities in the country and not just stick to the now famous concept of `jugaad’. It really bothers me that we have become so smug about `look, how good we are’. `Jugaad’ means you use whatever little resources you have and make something happen. Jugaad does imply a positive ‘can-do’ attitude, but unfortunately, also involves a ‘make-do’ approach. It can, hence, lead to compromises on quality and rarely involves cutting edge or breakthrough technology. ‘Constraint-led Innovation’ is a better approach. It targets the most advanced technology but with a philosophy of ‘more for less’. The time has come for India to move from ‘jugaad’ (somehow) to ‘jhakkas’ (superb).”

Thus, with the “constraint-led innovation” embedded by Anand Mahindra into the company’s culture that propelled M&M forward over the years since the turbulent period of India’s liberalization, this different form of “India’s Berkshire Hathaway” has been able to recover from shocks and stresses and to adapt and grow from disruptive experiences, creating and taking advantage of new opportunities in good times and bad. Just like the values of the Bamboo Innovator, bend not break even in the wildest of storm, staying strong and resilient in a world where things go wrong.

Read more about the story of “India’s Berkshire Hathaway”

at the Moat Report Asia: http://www.moatreport.com/updates/

Warm regards,

KB

The Moat Report Asia

www.moatreport.com

A new monthly issue of The Moat Report Asia is now available!

Access the in-depth idea presentation:

http://www.moatreport.com/members/

This month of July, we highlight Asia ex-Japan’s largest maker of a mission-critical automotive electronics part that is dubbed the “nervous system” in cars whose electronic content is rising due to the Green, Connected, and Autonomous automotive trends. Without this “nervous system”, the various auto parts cannot start and work. While it is considered a Tier-2 auto parts supplier, [Company’s name] directly participates in the design process of Tier-1 suppliers for most of its [Flagship product’s name] to be “designed-in” and as a result, enjoys sole supplier rights during the first 2-3 years following a new model launch. In addition, [Company’s name] has changed its sales model in China from a distributor model to direct selling, forging Tier-1 relationship with the major Chinese automakers, including accounting for over 50% of [Flagship product’s name] used in emerging electric vehicle maker BYD (1211 HK). Its top ten customers account for around 44-50% of sales. [Company’s name] has pursued the strategy of a diversified customer base to lower operating risk so that “no one “no one customer can seal the life and death of [Company’s name]”, and the rest of sales are contributed by hundreds of customers.

In the ruthless cut-throat automotive industry, the fact that [Company’s name]’s EBITDA margin at 33% is twice that of world-class Bosch India (BOS IN), arguably the best auto parts company listed in Asia, and [Company’s name]’s ROE of 20.5% is also higher than Bosch’s 14.5% speaks volume about [Company’s name]’s wide-moat advantage in securing long-term pricing power and earnings sustainability with the major OEM carmakers by winning their trust to strike long-term partnership. Bosch India trades at an expensive valuation premium of EV/EBITDA 42.9x compared to 12.2x for [Company’s name]. [Company’s name], with its technical superiority in developing low-cost innovative solutions and in generating higher profitability and growth, deserves to command comparable a higher valuation. Short-term downside is protected by a decent cash dividend yield of 4% and supported by a healthy net-cash balance sheet generated from internal free cashflow as opposed to external equity or debt funding.

Led by the highly inspiring Mr. C, [Company’s name] has toiled for more than 10 years since it entered China before bearing some of the fruits. [Company name]’s sales has climbed nearly 31% since FY11 while EBITDA growth is stronger at 78% with the impressive improvement in gross margin from 34.2% to 42.1% due to greater sales weight of higher value-add products that include [Flagship product’s name] for electric vehicles (EVs). Now the growth momentum has hit the tipping point for [Company’s name] to accelerate its profitability significantly in its visible long runway to supply the mission-critical automotive electronics part that is dubbed the “nervous system” in cars whose electronic content is rising due to the Green, Connected, Autonomous automotive trends. Net profit and EBITDA could potentially double in the next 5 years by FY2020, pointing towards a doubling in market value.

Daniel Kahneman: ‘What would I eliminate if I had a magic wand? Overconfidence’; Why Empathy Matters In Investing – Bamboo Innovator Daily: 27 Jul (Mon)

Life

  • Daniel Kahneman: ‘What would I eliminate if I had a magic wand? Overconfidence’: Guardian
  • 10 CEOs who prove liberal arts degrees aren’t worthless: BI
  • Susan Cain Instigates a ‘Quiet Revolution’ of Introverts With Speeches and Company: NYT
  • 7 things you can do to be a better communicator: BI
  • 7 ways to talk about yourself without sounding like a jerk: BI

Investing Process

  • Why Empathy Matters In Investing: Fundoo
  • The going gets tough for value managers: FT

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The one thing all entrepreneurial people have in common; Higher Ambition: How Great Leaders Create Economic and Social Value; The Key: How Corporations Succeed by Solving the World’s Toughest Problems – Bamboo Innovator Daily: 26 Jul (Sun)

Life

  • The one thing all entrepreneurial people have in common: BI
  • How an investing giant taught Chicago kids financial literacy and disproved the doubters: Fortune
  • People Offer Better Ideas When They Can’t See What Others Suggest: HBR

Books

  • Higher Ambition: How Great Leaders Create Economic and Social Value : amazon
  • The Key: How Corporations Succeed by Solving the World’s Toughest Problems : amazon
  • High Commitment High Performance: How to Build A Resilient Organization for Sustained Advantage: amazon

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