A Pyramid Called Amway

Something unusual happened a couple of days ago. The chief of Amway International, William S Pinckney, got arrested by Kerala Police, on charges of fraud and money laundering, under a little-known law called the "Prize Chits and Money Circulation Schemes (Banning) Act, 1978" (PCMCS).

Pinckney is no small fry - he heads a company that has a presence in about 60 countries. In India, Amway is the 5th largest FMCG company in terms of revenue; it has 145 offices, 65 warehouses, and a presence in 80 cities across the country. The company has 36% of the Rs.6300 Cr direct selling market in India.
Direct selling is Amway's biggest strength but the method it adopts seems to have turned it into a great weakness as well. Unlike, say, Eureka Forbes which sells vacuum cleaners to customers directly, Amway network of 1.5 million direct distributors look very much like the bricks of a pyramid scheme. In this model, customers are made the company’s agents who sell the products to other people directly. In other words, the agent-turned-customer will not get a commission directly. He has to rope in others through sales. So the network will keep growing inexorably...until somebody at the bottom of the pyramid crumbles, cries foul and takes legal action.
To be sure, the law itself (PCMCS Act) is rather vague on the issue. It does not mention anything specifically about Multi-Level Marketing or Pyramid Schemes. The closest we get is through Article 2(c) - "Money Circulation Scheme", which is defined as -

(c) " money circulation scheme" means any scheme, by whatever name called, for the making of quick or easy money, or for the receipt of any money or valuable thing as the consideration for a promise to pay money, on any event or contingency relative or applicable to the enrolment of members into the scheme, whether or not such money or thing is derived from the entrance money of the members of such scheme or periodical subscriptions;

In this case what seems to be 'circulating' is the huge margins that go with the company's overpriced products. 
This being a Central Government Act, it specifies (under Article 13) that each state government can make it own rules for implementing this law. So this might explain why Kerala government decided take action on the basis of locally registered complaints.

However, one things remain unclear: Does Amway have the same pyramidal set-up in other countries? Isn't the company's home country a lot tougher on anything that looks like a Ponzi scheme?

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REFERENCE / LINKS

* Das, Surajit Das and Sounak Mitra (2013): Amway Surged by Converting a Multitude into Sales Agents, ET 29May13

- Amway is 5th largest FMCG company in terms of revenue - Dabur, Godrej, Marico, Colgate-Palmolive, ZGSK, Amway (R2288Cr), Emami, P&G, Gillette

- Star products - Nutrilite (50%+ of revenue) -- Glister toothpaste --SA8 liquid detergent --

- Also sells health insurance for MaxLife, Alliance and its own AmSure

- William S Pinckney + two directors - Anshu Budhraja and Sanjay Malhotra - arrested on 28May13 at Kochi -- under Prize Chits and Money Circulation Schemes (Banning) Act, 1978 (PCMCS)

* 2013 (First Post 28May13): Amway India chief, directors get conditional bail: All you need to know --- http://www.firstpost.com/business/amway-india-chief-directors-get-conditional-bail-all-you-need-to-know-821041.html

* 2013 (Mint, 28May13) - http://www.livemint.com/Companies/zlg0Q8vFjJKf2MK577BO4H/Kerala-police-arrest-Amway-CEO-Pinckney-two-Indian-executiv.html

* What is a Pyramid Scheme? -- http://www.investopedia.com/articles/04/042104.asp

* Prize Chits and Money Circulation Schemes (Banning) Act, 1978 (PCMCS) -- http://indiankanoon.org/doc/1621737/

* 2013 (FT, 29May) -- http://blogs.ft.com/beyond-brics/2013/05/29/amway-india-snared-by-law-against-pyramid-schemes/?#axzz2UlsgLT00

* 2012 (Hindu BL, 28Dec) -- Kerala Mulls Law to Curb Money Circulation Schemes --- http://www.thehindubusinessline.com/government-and-policy/kerala-mulls-law-to-curb-money-circulation-schemes/article4249385.ece


* India Direct Selling Association (IDSA) -- http://www.idsa.co.in/

Murakami - Lost in Translation

This observation struck a chord:

The Japanese language acquires much of its beauty and strength from indirectness—or what English-speakers call vagueness, obscurity, or implied meaning. Subjects are often left unmentioned in Japanese sentences, and onomatopoeia, with vernacular sounds suggesting meaning, is a virtue often difficult if not impossible to replicate in English.

Is there any other language that uses onomatopoeia so extensively?

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LINKS:

Kelts, Roland (2013): LOST IN TRANSLATION?  The New Yorker, 9 May 2013 --- url -- http://www.newyorker.com/online/blogs/books/2013/05/lost-in-translation.html

Japanese Onomatopoeia -- http://www.tofugu.com/guides/japanese-onomatopoeia-guide/

Countervailing Buying Power

In India, the Competition Act, 2002, was amended in 2007 to create two new agencies: the Competition Commission of India (CCI) and the Competition Appellate Tribunal (CAT). CCI is expected to promote, regulate and sustain competition in the market while CAT is to help resolve any disputes.

Article 19 (4) of the Act states that CCI shall, while 'inquiring whether an enterprise enjoys a dominant position'...have due regard to a number of criteria, one of which is  "countervailing buying power".

What is Countervailing Buying Power?

Buying Power is "the ability of a buyer to influence the terms and conditions on which it purchases goods”. This is fairly straightforward. Large supermarkets like Walmart are in a position to drive a hard bargain from its suppliers. In exchange for large volumes and access to developed markets, manufacturers (eg., Knitwear from Tirupur) are forced to strip down their margins to the bare minimum, and this, is supposed to help the supermarkets offer sharp discounts to their customers.

The word 'Countervailing' is a little more complicated. It is most often used in the context of international trade, as in Countervailing Duties (CVD), which are taxes imposed by a government to prevent cheaper imports from running the domestic manufacturers out of business. In India, CVD is additional duty of customs is levied to offset the disadvantage to like Indian goods due to high excise duty on their inputs.

So Countervailing Buying Power is something that helps bring down the cost of a product when manufacturers (sellers) seeks shelf-space in a supermarket. It is often used as a defense in merger cases, to paint a picture of powerful buyers rising up to seller power. For instance, Walmart and Ikea often proclaim that they are able to supply relatively cheaper groceries or furniture because they are able to able to drive a hard bargain with their suppliers.

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REFERENCES / LINKS

http://www.investopedia.com/terms/c/countervailingduties.asp
http://business.gov.in/doing_business/customs_duty.php
Central Excise Act, 1944 -- http://business.gov.in/outerwin.php?id=http://www.cbec.gov.in/excise/cx-act/cx-act-idx.htm
Why is Countervailing Duty Important? (MoneyControl) - http://www.moneycontrol.com/news/advertising/why-levycountervailing-duty-is-important_822635.html

Wondering about Mt. Kailash

Pick a random place South Delhi and chances are that it is named after the 'abode of Shiva', Mt. Kailash. You have Kailash Colony, Greater Kailash-I, II, III, IV, East of Kailash and West of Kailash. Elsewhere in Delhi, you will find Kailash Apartments, Kailash Hospitals and...the list is endless.

This fondness for Kailash goes much beyond Delhi. The Buddhists say three of their main Buddhas -- Manjushree, Avalokiteshwara and Vajrapani -- all live there in the mountain. The Jains say Rishabh lives there and South Indian mysticism says their greatest yogi, Agasthiya Muni, who is the basis of South Indian mysticism and is one of the seven direct disciples of Shiva, lives in the southern face of Kailash.

How and when did this mountain located beyond the Himalayan ranges, in far-away Tibet, come to occupy such a prominent place in our imagination?

What makes Mt. Kailash truly exceptional is the fact that it lies well beyond the other popular places of worship in the Himalayas. Most of these are located along the tributaries and glaciers that feed the great rivers. But to reach Mt. Kailash, you need to travel along the Kali river valley that cuts through the breadth of the Himalayas. Then, once you are on the other side Lipulekh Pass, on the Tibetan plateau, another long trek takes you between the twin lakes Rakshas Tal and Manasarovar before you finally reach the Mt. Kailash area.

How on earth did the ancient pilgrims find their way to this mountain??

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LINKS

http://www.huffingtonpost.com/sadhguru/pilgrimage-to-kailash-the-mystical-library_b_3121912.html
Pics from - http://en.wikipedia.org/wiki/Mount_Kailash and KMVN
http://www.euttaranchal.com/tourism/adventure/kailash_mansarovar_yatra_itineary.php

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The Silence on Ranbaxy

The corporate equivalent of a sledgehammer hit Ranbaxy last week and there has barely been a ripple in the Indian press.

The silence is rather surprising given the fact that Ranbaxy is one of the largest pharmaceutical companies in the country, and the fine imposed on it by US-FDA is no less than $500 million (~Rs. 2500 Crores). An NRI whistle-blower named Dinesh Thakur got $ 43.8 million (Rs. 266 Crores) for exposing the drug company for being dishonest about the safety and efficacy of its drugs.

Fortune magazine published an article describing in detail, the "epic inside story of long term criminal fraud" at Ranbaxy. The tone and tenor of the piece was not exactly balanced for it gave the overall impression that generic drugs were a risky proposition compared to the more expensive 'branded' ones.

A good example of this was the description of Thakur's personal experience with his company's products. It seems his own son recovered from a persistent fever & infection only when he switched from a Ranbaxy drug to a 'brand-name antibiotic' (amoxiclav) produced by its competitor, GlaxoSmithKline (GSK). It might have been worth mentioning at this point that GSK's record too has been less than stellar when it came to drug safety. Just a couple of years ago, in 2010,  GSK paid $750 million in criminal and civil fines to resolve a federal whistle-blower suit that highlighted problems at a factory in Puerto Rico.

Now, whistle-blowers and payoff's aside, the big question that is likely to hit an Indian reader is this: If Ranbaxy has been fudging data and selling dud drugs in Africa, Latin America and USA, what about the stuff it has been selling to hospitals and patients in India?

Its only yesterday that the Economic Times published a response from the Drug Controller General of India's (DGCI). A DGCI officer who 'did not wish to be named', states that they had inspected the plants in question (Dewas and Paonta Sahib) but found "found nothing particularly alarming about the facilities".

Nothing particularly alarming? One would have expected a government organisation to be more forthcoming about public safety. Did DGCI do any random sample tests of Ranbaxy drugs that were already in the domestic market? Did they find any traces of active ingredients - or glass powder - in any of them? Did any hospitals complain about poor-quality drugs from Ranbaxy?

Until credible answers emerge, I guess we would all be warily looking for alternatives to Ranbaxy's product line.

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REFERENCES / LINKS

* FDA - Regulatory Action Against ranbaxy - http://www.fda.gov/Drugs/GuidanceComplianceRegulatoryInformation/EnforcementActivitiesbyFDA/ucm118411.htm

* 2010 - The Guardian, UK -- GlaxoSmithKline whistleblower awarded $96m payout --- http://www.guardian.co.uk/business/2010/oct/27/glaxosmithkline-whistleblower-awarded-96m-payout
- Cheryl Eckard - Whistleblower who exposed contamination problems at Glaxo plant in Puerto Rico receives $96m
- Lawsuit doc in full - http://image.guardian.co.uk/sys-files/Business/documents/2010/10/27/glaxonew.pdf

* 2013 - First Post Business -- After swallowing bitter pill, Ranbaxy set to revive sales in US -- http://www.firstpost.com/business/after-swallowing-bitter-pill-ranbaxy-set-to-revive-sales-to-us-787055.html

* 2013 (ToI) - http://timesofindia.indiatimes.com/Business/India-Business/Whistleblower-feels-relieved/articleshow/20056271.cms

* 2013 (ET, 22May) - http://articles.economictimes.indiatimes.com/2013-05-22/news/39445394_1_ranbaxy-labs-drugs-us-regulator

* 2013 (BS 22May) - http://www.business-standard.com/article/companies/after-us-india-to-probe-ranbaxy-s-documents-113052101067_1.html

Recent Articles:

* 2013 (WSJ-Mint) - Ranbaxy Holds up an Ugly Mirror to Corporate India -- http://www.livemint.com/Opinion/1wbHWnjJBsrKgXKz3o76QL/Ranbaxy-holds-up-an-ugly-mirror-to-corporate-India.html
. What was cooking in Ranbaxy’s labs over nearly five to six years was never under any supervision. That exposes the lack of teeth and, perhaps, even moral responsibility of the Indian Pharmaceutical Association (IPA), the association of drug companies. What’s worse, not till the FDA’s actions did the Central Drugs Standard Control Organization, the designated Indian regulator, initiate any action against the company whose drugs are among the pricier and more popular ones in the Indian market.

* Narayan, Laxman (2013): A Deception Most Fowl, The Hindu, 26May13- http://www.thehindu.com/business/Industry/a-deception-most-foul/article4753453.ece?homepage=true
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Notes:  Allegations against Ranbaxy
- cutting corners + lax manufacturing practices + outright fraud
- knowlingly selling sub-standard drugs worldwide.
- Misusing the 'honor system' in drug applications (data provided by companies themselves)
- Ranbaxy "took its greatest liberties in markets where regulation was weakest and the risk of discovery was the lowest".
- Manipulated almost every aspect of its manufacturing process to quickly produce impressive-lookin data that would bolster its bottomline.
- Lying to regulators, back-dating (even its own SOPs) and forgery were commonplace.
- Internal report showed that of the 163 drug products approved and sold since 2000, only eight had been fully and accurately tested...the rest was phony data.


Timelines:
. 2002 - Dinesh Thakur leaves Bristol Myers Squibb (BMY) to joine Ranbax , Gurgaon
- 2003 - Thakur joins Ranbaxy
- data problems with - Ranbaxy's version (Riomet) of diabetes drug Metformin --- also with acne drug Isotretinoin
- Sotret - Ranbaxy's version of the acne drug Accutane
- Generic version of Pravastatin - a cholesterol lowering drug
- Anti nausea drug, Kytril (Roche)
- 2006 - Malvinder Sing succeeds Brian Tempest as MD & CEO
- 2008, Jun - 34% stake sale to Daiichi Sankyo for $2b - $4.6b
. 2008 - court filing by US Justice Department
- 2008 - FDA halts import of 30 different drugs from two of Ranbaxy's manufacturing plants in India + invokes "Application Integrity Policy" stopping review of any new drugs from its Paonta Sahib plant.
- 2010 - mounting recalls - pediatric antibiotic Amoxicillin and Clavulanate pottasium
- 2011 - FDA permits Ranbaxy to make a generic version (atorvastatin) of a popular drug "Lipitor" (anti-cholesterol drug from Pfizer)
- 2009 - caught with 12 boxes of generic drug, Isotretinoin (Roche)
- 2012, Nov - Ranbaxy recalls millions of pills after glass particles were found in some of them.
- 2012 - Justice Dept places Ranbaxy under sweeping "consent decree" - until quality verification and external audit of its plants.
- 2012 - Ranbaxy continues to grow - becomes the fourth-fastest-growing pharma company in the US (sales + prescriptions)

Policy:
- Freedom of Information Act -- used for getting FDA docs on Ranbaxy
- Hatch-Waxman Act 1984 - created a pathway - Abbreviated New Drug Application (ANDA), which allowed a generic company to simultaneously challenge a patent and demonstrate to FDA that it could make the drug. As a reward to taking the risk of almost certain litigation (from patent holder), the winner got six months of exclusive sales after the patent lapsed.
- Patriot Act 2001 - made it difficult to purchase and transfer drugs out of USA

Numbers:
- Global market for generic drugs is $242 million
- Ranbaxy is the sixth largest generic drug manufacturer in USA with more than $1 billion sales (2012). Its global sales is $2.3 billion.
- US regulators inspect only 11% of foreign drug manufacturers and 40% of domestic ones.

Borgias, Chaos, Creativity & Decentralization

In Italy for 30 years under the Borgias they had warfare, terror, murder, and bloodshed, but they produced Michelangelo, Leonardo da Vinci, and the Renaissance. In Switzerland they had brotherly love - they had 500 years of democracy and peace, and what did that produce? The cuckoo clock.   - Harry Lime in the Third Man (1949)

This perceptive and amusing movie dialog came to my mind while reading Amish's piece in the Hindustan Times titled, "The Centre Doesn't Hold". Amish's argument was that a decentralized  messy and politically divided land is actually good for innovation.

Amish points out that America's lead in innovation can be traced back to the fact that US constitution has focused on states' rights, keeping the federal government relatively weak. In pre-colonial India too "our political divisions allowed our innovators and free thinkers to have options. If the Palas didn't like your ideas, you could go to the Cholas. If the Tuluvas of Vijaynagar didn't like your thoughts, you could go to the Bahmani Sultans. Since we were culturally one country, travel was easy. Decentralisation helped innovation and kept us rich".

Post independence, we adopted to a Constitution that was designed to keep power & control firmly in the hands of a Viceroy, and, in the bureaucracy, simply exchanging white sahib's for brown sahib's. We paid the price for this  centralized 'iron framework' through stifling economic policies from the 1950s to 1991. Perhaps this was just as well because, because, in the bargain, our institutions have become strong enough to manage political disagreements with less chaos and violence.

Since we are unlikely to be like Switzerland in the foreseeable future, will the next round of coalition governments in India lead us into an era of chaos, innovation and creativity?

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LINKS

* 2013 (HT): THE CENTRE DOESN'T HOLD -- http://www.hindustantimes.com/News-Feed/ColumnsOthers/The-centre-doesn-t-hold/Article1-1059653.aspx

* IMDB - The Third Man (1949) - Quotes - http://www.imdb.com/title/tt0041959/quotes

Daulat Beg Oldi

 WikiMap: The Tibetan plateau

Daulat Beg Oldi. The first time I head about this place I readily assumed that it had been named after a soldier who died in action. I thought "Oldi" was a nickname.

Much like the Bana Post on the Siachin Glacier, I pictured a small stone memorial  standing dwarfed by the barren, inhospitable Himalayan heights -- the Karakoram range on one side and the Kunlun mountains on the other.

This picture just fell apart when I came to know that Daulat Beg lived & died long before anybody demarcated India or China on any map, and even a few centuries before the "Great Game".  It turns out that he was a merchant from Yarkand who could not take the stain of crossing the Karakoram pass, sometime in the 16th century...

Somehow this puts the recent India-China standoff in an altogether different context. It opens your mind to a world of silk traders who risked life and limb in search of profit,  and of monks who trekked across these very mountains to introduce Buddhism to Central Asia...

And what does "Oldi" mean? Simple - its just meant to tell you that 'Daulat Beg Died Here'!

WikiMap: DBO is at the junction of the pink and grey zones

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LINKS

http://library.thinkquest.org/10131/ladakh_shyok_burtsa_ao.html

Travels of Sven Hedin - http://en.wikipedia.org/wiki/Sven_Hedin

CBI : From Jain Hawala Scandal to CoalGate

"Parliament (is now) adjourned sine die, without conducting any significant business, as if we elect representatives simply to leave everything in abeyance...The government has no sense of propriety, shame, ethics or common prudence...The responsibility for a culture of corruption, evasion, lying and sheer contempt for institutions lies directly at the door of Sonia Gandhi and Manmohan Singh. Their air of injured innocence has become nauseating..."

The gloves are now off: In his latest op-ed published by the Indian Express yesterday. Pratap Bhanu Mehta, president of CPR has been particularly scathing about the conduct of the present government.

When he writes about "lying and sheer contempt for institutions", he is, of course, referring to CBIs handling of the Coal Report. One thing that keeps coming up in most reports on CBI is the Vineet Narain Judgement.

What is the Vineet Narain Judgement?

This story begins in 1991 when a militant from our friendly neighborhood named Ashfak Lone was arrested by Delhi Police. His interrogation led the CBI to a businessman named Surinder Jain and to his notebooks & dairies containing details of payoffs in meticulous detail. According to the CBI report, "The initials (in the dairies) corresponded to the initials of various high-ranking politicians, in power and out of power, and of high-ranking bureaucrats". When no follow-up action was taken by CBI for nearly three years, a journalist named Vineet Narain filed a public interest litigation (PIL) under Article 32 of the Indian Constitution.

As luck would have it, this PIL case - by now famous as the "Jain Hawala Scandal" - landed at the table of J.S. Verma, one of the most respected judges of in India (now, alas, no more). In his judgment (1997), it was ruled that "superintendence over CBI's functioning" would be shifted from the line ministry to an independent statutory body, the Central Vigilance Commission (CVC).

CVC was now directed to "review the progress of all cases moved by the CBI for sanction of prosecution of public servants which are pending with the competent authorities, specially those in which sanction has been delayed or refused".

Seen in this context, its hardly surprising that the Supreme Court is doubly upset with CBIs and the government's handling of the Coal Scam investigations.

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REFERENCES & LINKS

* Mehta, Pratap Bhanu (2013): PHANTOM DEMOCRACY, Indian Express, 9May13 -- http://www.indianexpress.com/news/phantom-democracy/1113222/0#sthash.mwGBqsLE.dpuf

* Supreme Court Judgement - Vineet Narain Case - http://cbi.nic.in/dop/judgements/excrpts.pdf

* PTI (9May) - Coalgate: CVC seeks report from CBI on Centre's interference in probe --- http://www.thehindubusinessline.com/economy/coalgate-cvc-seeks-report-from-cbi-on-centres-interference-in-probe/article4699127.ece

* Reuters (9May) - Government meddled in CBI probe, says Supreme Court -- http://in.reuters.com/article/2013/05/08/india-politics-cbi-coalgate-idINDEE9470DZ20130508

* http://en.wikipedia.org/wiki/Hawala_scandal
* http://en.wikipedia.org/wiki/Jagdish_Sharan_Verma

Ray, Graphic Artist

How much can you pack into one life?


In an HT feature commemorating Satyajit Ray's 92nd Birth Anniversary, I was pleasantly surprised to know that the great man had left his mark, far beyond the world of books and cinema. He also excelled in typography and graphic art!


Here are some copies that grabbed my attention:

A campaign for the Tea Board

Booklet cover design

Jabakusum anti-hair-loss tonic! :)

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LINKS & REFERENCES.

http://www.satyajitray.org/

http://www.satyajitrayworld.com/versatility_advertisements.php

Ray on the net -- http://www.satyajitray.org/links/index.htm