Although the economists still can’t agree on the real quantative impact of various stimulus packages that were adopted by economies from around the world but one cannot dispute the fact that the size of the stimulus did matter and did work in most cases.

To investigate this further let us look at the various stimulus packages that were adopted during the CRISIS.

Obviously by the sheer size and percentage of National GDP China’s US $ 586 billion stimulus Package which accounts for above 12.9% its GDP stands out from the REST. It is possibly followed by Saudi Arabia, Malaysia, and the mother of all STIMULUS thrown by United States under its American Recovery and Reinvestment Act of 2009 which is the largest by any measures (US$ 787 billion).

At the time there were market pundits who were debating the pros and cons and some even doubted if the stimulus packages will deliver and I am glad to admit that some of us including myself had a different view. Based on my judgement and commonsense I concluded in a piece that I wrote in March of 2009 titled “ Getting the Patient Out of Intensive – The Economy “ that it should deliver and put the US and the world economy back to growth. But having said we should have no illusion that the road ahead is still bumpy and uncertain.

In comparison to other economies most European countries with the exception of Germany and France have been reluctant to throw a bigger stimulus package (mostly because of their fiscal position ) with sizes between 0.3% of its GDP in case of Italy and 1.3% in the case of the United Kingdom. Germany clearly stands out with its two fiscal packages summing up to US $ 110 billion (approximately) which is 2.8 % of its national GDP hence it is no coincidence that Germany and France were the first EU nations among the EUROPEAN UNION countries to get out of RECESSION.

I think it is interesting and also probably important to point out that an unloaded stimulus with mostly tax breaks as the first wave of stimulus didn’t do much as evident from the one off tax rebate under the American Recovery Act of 08 of Bush Administration. It looks like the additional money was clearly used by majority of the Americans to pay off the existing debt. Also the experience of BUSH administration’s 2001 tax cut bill clearly shows that rebates generally wind up as savings or as debt repayment.

So taking the above into consideration economies like the US, Germany, Australia ,Spain and others who initially clearly favored tax cuts over spending in their respective first wave of stimulus packages in 08 decided in favour of an alternative measure that included more expenditure loaded plans in 2009 in combination with other incentives.

According to the IMF the total stimulus amounts to US $ 2 trillion ( approx) which is around 1.4% of the world’s GDP still below the IMF’s recommendation of 2 % of world GDP, however, only 15 per cent of the overall fiscal stimulus was really allocated for 2008 and the remaining 85% to be allocated over a two year period 2009 and 2010 with 48 per cent and 37 per cent, respectively. Also an important point to note is that while most of the Asian and other economies focused on their fiscal expansions in 2009, China’s and also the US the fiscal stimulus will only reach its PEAK in 2010. It is hard to accurately estimate to which extent the stimulus will be implemented in 2010 especially as the economies are stabilising and getting back to growth. And the recent downgrade of countries like Greece, Ireland, Spain and Portugal also means that going forward the economies will start focusing more on fiscal consolidation or else they run a huge risk of being punished for their inaction. The bond vigilantes are clearly BACK and they have all the reasons to be WORRIED.

Let us look at a list of top five debtor nations to get some perspective

1. Ireland - External debt (as % of GDP): 1,267%
External debt per capita: $567,805
Gross external debt: $2.386 trillion (2009 Q2)
2008 GDP (est): $188.4 billion

2. Switzerland - External debt (as % of GDP): 422.7%
External debt per capita: $176,045
Gross external debt: $1.338 trillion (2009 Q2)
2008 GDP (est): $316.7 billion

3. United Kingdom - External debt (as % of GDP): 408.3%
External debt per capita: $148,702
Gross external debt: $9.087 trillion (2009 Q2)
2008 GDP (est): $2.226 trillion

4. Netherlands - External debt (as % of GDP): 365%
External debt per capita: $146,703
Gross external debt: $2.452 trillion (2009 Q2)
2008 GDP (est): $672 billion

5. Belgium - External debt (as % of GDP): 320.2%
External debt per capita: $119,681
Gross external debt: $1.246 trillion (2009 Q1)
2008 GDP (est): $389 billion

I should point out that I’ve taken the above numbers from various sources including of IMF, World Bank and others.

It is a pretty Ugly reading isn’t it? The only good news is that it looks like the policy makers and the central bankers are beginning to take note of the worries and as a result have increasingly started to talk about creating a credible exit strategy as a priority.

Although one understands that there is need to fix balance sheets (fiscal consolidation) and address the inflationary concerns by having a clearly formulated, defined and coordinated exit strategy in place. But that said Timing will be KEY here as exiting too soon or too late has its own risk. And also it is extremely important that the process should only begin when there is enough hard evidence to see that economy will keep growing on its own after the removal of the stimulus or in other words it is evident that the recovery is solid, financial markets are back to normalcy and credit risk spreads are at an acceptable level and there is a significant risk to inflation over the medium term. We have already seen some of the central banks tighten in the later part of 09 and it is becoming increasingly plausible that others especially in Asia including of countries like India will follow suit as the real inflation starts to pick up.

Going forward the Central banks will need to explain clearly how they intend to use all the tools both conventional and unconventional that are available to them. But having said that, there is also a genuine fear that any preannouncement could possibly push the interest rates up prematurely thus derailing any chance of a ROBUST recovery. The Q4 of 09 and Q1 of 10 numbers should give us a good estimate of the strength of recovery. The economic improvement has to be across the board and not just in one sector to justify any intervention. We have seen some encouraging numbers reported from parts of the US economy in later part of 09 including of jobless claims falling to 432,000 - the lowest since September of 09 ,ISM Manufacturing Index rise 55.9 in December which is the highest level since 06, and also an improvement in business and consumer confidence etc but on the other hand the construction spending fell by over 0.6% in November of 08, US business loan defaults rose again in November of 09 and so did the US credit card debts write off. So we are still seeing some very mixed numbers come out which is what I have been expecting and this is why I keep saying to my friends and colleagues always look Beyond the Numbers, and dig deep.

I think it is extremely important not to overlook the human cost of this recession. According to the New York Times article dated 28th December 09, New York’s state courts are closing the year with over 4.7 million cases- the highest ever. The courtrooms are clearly seeing the aftermath of economic collapse on average folks on the main street and on businesses. I think from a judge’s perspective and also from the folks who are in the midst of all this it will be extremely hard to see signs of an ECONOMIC RECOVERY. But for some of the Wall Street guys it’s back to PARTY again as expected. I did write a piece titled “Investing in 2009: Back to Basics “ in Feb/March of 09 and I thought I’ll just quote the last paragraph. “The markets will come back at some point and there will be parties again on the streets, but the question is, will this happen again? I am sure it will. After all, we are human beings! “

Well, moving on even though we are still seeing mixed numbers I think it is probably safe to assume that we could see the US economy grow between 2.5% to 3.5 % in the year 2010. And the reason for that is the economy has to grow from a very low bottom so even with a very basic and existing demand the economy will grow. And also it is also very plausible that the US may outperform other developed nations including the EU. But the party is going to continue in the Emerging Market. And among the Emerging markets you would see economies with deeper domestic base like Brazil, India, Indonesia and Turkey do better than export driven emerging economies.

While we are busy talking about growth prospect of the global economy and the road ahead one has to also admit that the policy makers have managed to avoid a Great Depression type event by not adopting an extremely tight fiscal and monetary policy. Also there is no doubt that the stimulus packages have delivered as it is becoming increasingly evident from the performance of the economies like China, India, Germany, France and the US among others. That said there is no doubt that the road ahead is still turbulent and bumpy and a policy mistake here could jeopardize the whole recovery process. Monetary and fiscal policy changes will have to be coordinated. The main aim of any intervention should be to support growth and maintain price stability.

However, one of the safest open market operations could be raising the interest rate on banks’ reserves at the central bank as it will allow the central banks to mop up the excessive liquidity in the banking system by making sure the money is deposited back at the central bank and in so doing prevent excess credit creation and also inflation eventually. This is exactly what the Fed is intending to do through their term deposit program announced on December 28th 2009. The clear intention behind the program is to help mop up some of the $1 trillion in excess reserves in the U.S. banking system. While this should be easily achieved the unwinding of the assets bought by the central banks during the CRISIS will keep them awake. But that said it will depend on the timing, if they were selling to an extremely confident market they could even make money from the asset sales but let’s see.

And with regards to the performance/returns of various investment classes I think it is probably safe to assume that in 2010 bonds or any other investment class for that matter will not provide or duplicate the excessive returns as seen in 2009. And going forward we may very well see people chasing the higher yields again and get into more risky asset class. But, however, we may also see people jump back into safer bets like US treasuries if we were to have another Dubai type event so I guess a lot will depend on the market sentiment and confidence. There is still a strong demand for US treasury as evident from the weekly auction in December of 09. If you look at the corporate world you would see that most of them are talking about issuing more public equity to help repay the debt and strengthen their balance sheet. And if the fundamentals keep improving then it will lower the default rate but one shouldn’t underestimate the risk especially if you consider that down the road a rate hike is on the cards so bond holder should position themselves for what is coming. That said I don’t buy the argument that a total meltdown is coming in the bond market and everybody should get out because I believe if the economy grows strongly then it should withstand a hike. But for now let us hope the policy makers and central bankers get it right ……Fingers Crossed.

I tend to shy away from politically focused posts as the feedback is generally overly intense, sometimes irrational and usually futile.  It’s almost as bad as trying to discuss the perennially hot topic of religion.  The discussion always begins amicably enough, but it inevitably seems to devolve into senseless argument.  I think Oscar Wilde said it best:  “Arguments are to be avoided; they are always vulgar and often convincing”. 

After watching the recent State of the Union address (embedded below; please watch it if you have not…It’s worth it) I felt compelled to share a few thoughts, given that much of the  focus of the speech is centered on the economy.  A harsh reality is that politics and business are firmly joined at the hip, whether you want to believe that or not.  A clear example of this would be the special bond between corporate entities and career politicians.  How many times have you heard of “gray-area” reciprocities that have transpired over the past few decades alone?  You know what I mean – transactions that just didn’t seem to pass the common sense test.  Remember the cozy relationship between Halliburton and former Vice President Dick Cheney?  Wiki “Political scandals of the United States,” and you’ll get a flavor of just how extensive the list is. 

I know, I know … you’re probably thinking I’m heading down the path of “all politicians are criminals” stereotype.  That’s really not my intention here, so please bear with me.  We all know that political malfeasance is much more commonplace then it should be.  When was the last time you had that following thought running through your head after news of a scandal broke:  “Wow, I can’t believe he or she would do something like that”?  It’s almost expected these days.  The only questions are:  “How egregious is the act?” and “Will the public ultimately accept the indiscretion for what it was?”  It’s that simple; however, variables that dictate the public’s appetite for forgiveness is not.  Blagojevich = Bad, Clinton = Not so bad or even good.  Go figure.

Public scandal has always been easy for John Q. Public to judge.  It doesn’t matter if we’re right or wrong:  Perception has a tendency to prevail in the end.  What is difficult to judge is the inherently flawed underlying system.  It’s especially challenging if there’s never been a baseline or historic trend for comparison.  In an ideal world, our government would be composed of actual civil servants who genuinely care (at least in most cases) about the best interests of our nation.  It would be a role seen as a calling, not a career.  In such a systerm, where the public good takes precedent over personal ambition and a thirst for power, term limits would be unnecessary.  It would make perfect sense to keep sincere, red-blooded patriots in the House or Senate for as long as possible.  However, this ideal governance model has fostered the evolution of something sinister, but far less glamorous, than a juicy public scandal.  The output is an obvious deep-rooted polarization that has done nothing but enable complacency and prevent progress.   

A very close friend of mine captured the essence of my exact sentiment, which I’d like to share.  The passion behind his words are almost palpable.  Thanks for sharing Joe!

Joseph Rasamny:

“…I found myself just becoming more and more frustrated as I watched the state of the union address. I wasn’t so much annoyed with the president as with the entire situation this country is in politically, fiscally and intellectually.

In fact I thought that it was a solid state of the union, and I believe the president nailed on the head why true change is almost impossible today. America is in a perpetual election cycle, the media feeds on this cycle and the average person is bored of it. Both parties rely almost fully on a fanatical base and relish the status quo.

It used to be that the political pendulum would swing from left to right, and as it reached its apex on each side political and national progress would be made. Today this just doesn’t seem to be the case anymore; we are mired in the middle, neither party wanting to upset their base while at the same time trying to pander to the middle.

I am not sure what the solution is, or even if there is one, however what I do think is that we need an imposed term limit on the house and senate of a single term, no re-elections period. I think that is the only way to get the career politicians out and get true civil servants back in, people who truly want to help this country, not rob it blind.

He said he won’t give up, but sadly I think the people are.”

By now, you probably know a friend or a friend of a friend who has seen the blockbuster movie “Avatar,” a film that undoubtedly touts the creative genius of James Cameron, with a plot that seems to be universally appreciated, visually stunning cinematography and cutting-edge 3D technology that puts the proverbial cherry on top. Anecdotally, it just seems that moviegoers are actually excited about going to theaters again, a trend of which Hollywood is keenly aware.

As the “Avatar”-sparked 3D revolution continues to build momentum, I find myself asking a profoundly simple question: Is it sustainable? 3D has been around for a very long time. Yes, the technology itself has evolved in tremendous ways, but the original concept goes back over fifty years, not to mention there have been 3D resurgences in both the 50s and 80s. However, the spikes in usage during those periods were seen as gimmicks that quickly lost popularity.

In the January 6, 2010 Yahoo News article “Blockbuster ‘Avatar’ to accelerate 3D revolution”, the author states that “[a]ccording to organizers of a recent 3D film festival in Belgium, more than 150 3D films are currently in various stages of production. Among them is the long-awaited movie adaptation of comic-book hero ‘Tintin,’ directed by Oscar-winner Steven Spielberg and tentatively scheduled for release in 2011.”
It’s clear that Hollywood sees the current 3D revolution as an opportunity to accentuate the moviegoer experience and glean profits in the process. But I for one feel that the 3D zeitgeist will pass and ultimately succumb to one irrefutable principle: Technology without substance or meaningful content is destined for failure.

In other words, a bad movie is a bad movie, regardless of how impressive the 3D is. “Avatar” was a gamble in many ways – a staggering $500 million budget, no-name actors, and a sci-fi world that people were either going to love or hate. It just so happened that the film resonated with audiences in a very universal way. The film has grossed over $900 million in the foreign market alone. Do you really think that was attributed in any significant measure to the 3D technology? If technology was enough, then “My Bloody Valentine 3D” would have been box office gold.
Over the past decade, Hollywood has made a significant investment in promoting the 3D experience, the last five years alone having produced over seventy-five 3D films. Some notable 3D movie successes since 2004: “The Polar Express”, “Chicken Little”, “Monster House”, “Harry Potter and the Order of the Phoenix”, “Beowolf”, “Bolt”, “Monster vs. Aliens”, “UP”, “Ice Age 3”, “Harry Potter and the Half Blood Prince” and “Disney’s A Christmas Carol.”

What do all of these movies have in common? They are all good movies that appealed to the masses. The formula is that simple. The 3D technology may have played a hand in setting them apart a little bit, but it was the movie itself that appealed to movie-goers. I can guarantee you that the euphoria of 3D will be knocked down a few pegs once Hollywood experiences a few failed 3D experiments. Mark my words.
With that said, the technology undoubtedly enhances the moviegoer experience. I must confess that I found myself saying “wow” more than once during “Avatar”. The reality is that the technology will become more prevalent in the movie industry for at least the next 3-4 years, but time will tell if 3D has the staying power that movie executives are banking on. As I mentioned earlier, technology without substance is destined for failure.

One quick side note:
Back in 2003, James Cameron created “Ghosts of the Abyss”, which had a paltry $12 million dollar budget to “Avatar’s” massive $500 million cap today. How far away do you think we are before we see the first $1 billion dollar budget?

About a year ago, I was strongly considering the pursuit of an executive MBA to compliment my existing advanced degree in technology management.  I had been on the fence about the decision for quite some time.  Part me of felt as though my education would be that much more enhanced with the addition of those three little letters to bolster my resume.  Another part of me just felt as though I had unfinished business from several years prior.  You see, my graduate degree was comprised of about 1/3 of the standard MBA curriculum so I theoretically could have declared a dual degree approach.  But I didn’t.  At the time it just didn’t make much sense.  I had just landed a new job as a consultant and I knew my time would be very limited moving forward.   

As I revisited the possibility of heading back to school, an executive MBA was the only thing that might be able to comport with my hectic work schedule.  I decided to attempt to obtain firm sponsorship so my tuition fees would covered.  Unfortunately I didn’t make the cut as only 1 out of a little over 2o applicants received sponsorship.  This was at the height of our economic downward spiral so the outcome really didn’t surprise me at the time.  Trying to obtain firm sponsorship was even more challenging then the actual executive MBA application itself.  Not only did I need to provide a completed application that I’d be providing to the university I was applying to, but there were also series of other internal applications and recommendations I needed to provide.  It was an extremely painful process.

As you could imagine, the process left me with a number of completed applications; including my precious essays which would sadly never see the light of day.  Rather then cast them into the abyss of my My Documents folder, I felt that it might be helpful to some if I shared a sample essay response to one of the most commonly asked MBA admission essay questions.  The hope is that my personal style to the essay may help spark new ideas to help enhance your own response, and ultimately increase your chances of getting into the school of your dreams.  To be clear, this is not an approval to plagiarize the essay.  Writing an MBA essay for admissions is a profoundly personal activity.  It should reflect who you are, and not what you think the admission’s committee would like to hear.   

The following is one of the most commonly asked MBA admission essay questions:  Why are you an ideal candidate for the Executive MBA Program and how will your professional and personal accomplishments benefit your EMBA colleagues? 

Sample Essay Response (Written on December 2008): 

I feel I would be an ideal candidate for the executive MBA program for three reasons, which can be summed up with three words: Leadership, Ambition and Integrity. 

Leadership:
One of my earliest life lessons was never to pass judgment on someone’s motives or actions without a firm grasp on the relevant facts.   It’s a lesson that has aided me well in the business world.  I have received many such pearls of wisdom over my career.  They have come from all walks of life, such as family, friends, colleagues and mentors.  Early in my career, I received an important piece of advice from a colleague who remains to this day one of my closest mentors:  “You’ll work with many types of people over your career.  People you’ll like.  People you’ll dislike.  People who are talented or even brilliant.  People with hidden agendas.  People who genuinely want to help you.  People who are just incompetent.  People who love life.  People who hate life.  The important thing to understand is that you must adapt your leadership style in order to work effectively with all of them.  Observe their behaviors and take mental notes on their strengths.  Cast aside their obvious weaknesses.  Learn from those strengths and make yourself a better leader.” 

This advice continues to resonate with me and no doubt explains my tendency to observe very carefully the professional behaviors of those whom I encounter.  I feel this very inclination has driven me to become the leader that I am today in both my professional and personal lives.  Ernst & Young is a firm which prides itself in providing a platform through which its leaders can be cultivated to succeed in anything they choose to do.  I can attest to this strategic vision as I am a product of that very system.  Exposure to world-class clients, top-tier talent and limitless resources are everyday occurrences for me.  It’s a rollercoaster ride of unparalleled excitement one minute, which can be punctured by more sobering realities the next, all of which are experienced at break-neck speeds with little to no time to recoup.  I firmly believe it takes a special type of leader to thrive mentally in such an environment.

Ambition:
Ambition is a trait that someone is either born with or not.  I’ve heard this argument made many times in my life.  I firmly believe that this is a true statement, but I also feel that it is woefully incomplete.  All my life I have had the desire to be better or to win at everything I do.  Whether it was in sports or in the classroom, I always felt a profound internal disappointment if I did not come out on top.  The outcome always motivated me to work harder.  Was this a good thing?  For the most part, I feel it was, though my views on ambition have changed in recent years.  Ambition is a trait that someone is born with, but it must be fueled in order to remain sustainable.  Furthermore, ambition must never run wildly at the expense of others.  It must be controlled; if it’s not, it can quickly become a detriment to one’s career. 

I have made no secret of the fact that I have ambitions to reach a partner or c-level position in the future.  While I am confident that I will someday reach that level, I also know that career development is a critical process that takes place over time.  It’s a never-ending foundation of education and experiences that will prepare me for the right future leadership role.  The key is to funnel one’s ambition into concise actions in order to achieve one’s goals sooner than later.  This is a point that I emphasize when teaching or mentoring younger professionals.  In fact, I’ve followed my own advice by proactively pursuing superb professional experiences, building up my professional network, obtaining an advanced education and professional certification, joining multiple professional membership groups, researching and writing on business topics and, most importantly, absorbing insight from clients, mentors and colleagues alike.  I will continue to fuel my ambitions with deliberate actions.  To be clear, these ambitions have not been followed blindly.  I have not and will not jeopardize what I value most in my professional life, which is the final element I’d like to discuss - Integrity.    

Integrity:
It didn’t take a struggling economy created by corporate greed or malfeasance to tell me just how crucial the concept of integrity is.  Through the values that they raised me with, my parents taught me that lesson at a very early age.  My parents, who are immigrants, left a deep imprint on my character through their example, by the fact that they both worked hard throughout my childhood, taught me the value of a dollar and of making an honest living, by the fact that they not only managed to carve out a good life for themselves by making responsible fiscal and moral decisions, owning property and having savings, but also by sacrificing and providing an education to both their children.  These are things that every immigrant works hard to achieve but few ever really do.  It is an achievement that I marvel at to this day, and one which will continue to inspire my professional motives to take advantage and build upon the solid foundation they have laid before me.  Integrity is a mindset which I feel is woven deeply into the fibers of my very character.  History has shown us time and again just how critical this value is.  At the heart of the many tragedies typified by the Enron debacle lay leaders who possessed questionable moral fiber.  In the final analysis, these were leaders whose brilliant minds were surpassed by their arrogance, which in turn was only eclipsed by their ravenous greed to get what they wanted, no matter what the cost.

Integrity is a value I carry with me to every professional experience I encounter.  I try to make it a part of my character and not just a platitude I invoke whenever it’s convenient.  It is easy to pay lip service to the concept of integrity when one is not in any type of challenging situation that impacts him or her directly.  At times people will shift their behaviors and adapt to their environment in a negative sense, by losing or sacrificing core values in order to get ahead or reflect a certain cultural mindset.  In such instances, I often think of a quote from Viktor Frankl’s book, “Man’s Search for Meaning,” in which he said, “The last of human freedoms - the ability to choose one’s attitude in a given set of circumstances.”  I have been tested with numerous professional situations in my career where I chose to be fair and honest, though this choice did not always make me the most popular person in the room.  An example comes to mind where I was strongly encouraged, by a senior ranking executive, to provide official credit to a colleague for a business success with which that that person were not affiliated.  The encouragement was politically motivated to accelerate the advancement of that particular individual’s career.  I could easily have conformed to avoid conflict as the action would have been innocuous enough.  But instead I chose the path of ethical righteousness by choosing not to participate in the granting of an artificial accolade.  My decision was openly supported and respected.  Ernst & Young is a firm which genuinely preaches the philosophy to all of its employees that profits never supplant values.  It is for this main reason that I’m most proud of being part of such an organization.  It’s an environment in which I find great comfort.  It exemplifies the very same values my parents wanted me to practice in the life that I lead today.   

Conclusion:
As a prerequisite, I feel an ideal candidate must possess these three elements in order to succeed in your program.  The EMBA program, just like Ernst & Young, aims to cultivate seasoned leaders with high potential and to propel them to even brighter horizons.  I possess that seasoned leadership prowess.  Your program will undoubtedly require tremendous sacrifice, intellect and hard work in order to succeed.  I possess the focused ambition to do so.  Your program will demand a keen awareness of “gray area” business issues, issues that will need innovative solutions to avoid the moral dilemmas of tomorrow.  I possess the integrity needed to have this difficult discussion. 

My background touts a wide range of professional experiences such as small business owner, corporate professional, entrepreneur and global consultant.  Those broad experiences coupled with the elements mentioned above would foster a candid environment of knowledge exchange and innovative thinking which I feel would be extremely beneficial to any EMBA colleague.  I also feel my strong interpersonal skills would make it easy for students to approach me to begin discussion on any business subject.  My hope and expectation is that is that the EMBA program will enable its students to conduct these types of free-form discussions, as those perspectives are what I’m personally seeking to explore.

Developing countries’ share of global equity market capitalization jumped to a record 24 % in the first half of 09 from the past levels of 15% at the start of 07 as more investors flock attracted by the growth story.

Investors are now beginning to realize that developed nations are possibly faced with decades of very low growth and may need decades to work off the mountain of debt which is the biggest since World War II. According to IMF recent forecast the total debt of developed nations used to fund various bank bailouts and stimulus packages could reach above 113% of GDP by 2014. This is more then three times the estimated forecast of 34% for developing nations. Though one could argue that developed countries have had bigger debt burden in the past ( post World War II ) reaching close to 250% of GDP in case of U.K., and over 100% in case of USA but these debts were repaid pretty quickly. On the other hand, we have to take into account that developed nations recorded decades of high growth just after the World War II ended which allowed them to get their fiscal house in order. In the current circumstances it is highly unlikely that the developed economies will see growth levels of post World War II era going forward.

Developed countries are in a catch-22 situation if they spend more to keep stimulating the economy they risk running into a huge unsustainable fiscal deficit. The combination of low growth and ballooning budget deficit could be very damaging to developed economies. The talk of the town is now increasingly focused on getting the fiscal deficit under control. It looks like the Governments in the developed world have resigned to the fact that they are entering into a low growth era. World Bank is now forecasting the GDP of high-income countries to shrink by over 4.2% in 09 and the overall global economy to contract by 2.9% in 2009. In terms of regional growth the World Bank is forecasting the growth in the Middle East and North Africa to fall to 3.1 percent, while that of sub-Saharan Africa to drop to 1 percent from an annual average of 5.7% and the LATAM to fall to 2% however, East Asia should post a growth of above 5%. Although the report suggests that economic growth in emerging countries could slow to 1.2% in 09 China and India should achieve a growth of above 6% in 09. We must also add that one of most interesting growth area of the global economy could potentially be rural India with its 700 million plus population. Some companies have already started to focus on rural area of the Indian economy as they see a very bright growth prospect going forward. The recent Indian budget has rural India at the centre and it looks like the government of India is aiming to UNLOCK the growth potential of rural India which is most certainly a step in the right direction.

It is becoming more apparent that going forward the growth is going to come mainly from the developing world. The ongoing CRISIS will mostly probably be recorded by historians as the event that triggered a POWER shift. The developing countries are already asking for more influence, oversight and control over how the global economy is managed, supervised and operates. The industrialized world’s clout to impose its policies will only weaken from here on. G-7 countries are beginning to realize that their grip on global affairs is slowly waning and they will have to give away a lot of their influence and control over how the global economy is run but that said it will be unwise to assume that developing economies are ready to lead the world.

We are already seeing signs of what could possibly be a shifting world order. We saw Russia host the first BRIC summit albeit a symbolic one. China, the world’s 3rd largest economy seems to be promoting Yuan as a serious alternative to dollar and it looks like they have a Grand plan for Yuan’s role as a global reserve currency going forward. This is evident from People’s bank of China recent unveiling of rules on Yuan-settlement facility. The rules will apply to companies involved in trade with Hong Kong, Indonesia and Macau. As a trial the central bank is going to allow companies in Shanghai and four cities in the Guangdong province to settle their trades in Yuan with companies in Hong Kong, Macau and Southeast Asia. In a separate announcement on July 6 Bank of China signed clearing agreements for Yuan settlement in Shanghai with over 11 overseas banks, including Standard Chartered, Bank of East Asia and Bank Mandiri of Indonesia. As one of the major trading countries it makes complete sense for China to start reducing its reliance on dollar. Despite of the fact that the stage is being set to promote a real alternative to dollar by major developing economies including China, Russia, Brazil and now India one has to admit that in the short to medium term it is hard to envision dollar loosing its status as a global reserve currency.

However, more and more investors are getting attracted to the emerging market story and who would blame them. We saw the MSCI Emerging Markets Index rise by over 35 % in June 09, beating a mere 2.9 % rise in the MSCI Index of developed economies and increasing the value of stocks to $8.6 trillion from $5.1 trillion in 2008. We also saw the market capitalization of Brazilian equities reach close to US 950 billion while that of Indian equities reaching close to US one trillion and Chinese equities surpass the US 3 trillion dollar mark in June. It is becoming more and more evident that developing economies are now moving closer to the centre stage and it looks like the investors have formed an opinion that emerging market is where the PARTY is going to be and this probably explains why the Investors have poured in close to US 26 billion into emerging market equities in the 2nd quarter of 09.

Although one understands the euphoria but we should not forget the fact that we live in a very interlinked world and any country on a stand alone basis is not capable of growing in isolation forever. It has to be said that not all emerging countries will fair well, Latvia is a prime example, but emerging markets have mostly certainly come of age and going forward without much hesitation one can safely conclude that they are going to be the next generation of growth providers.

I’m frequently asked by friends, family, clients, job candidates and random people I encounter on my travels what it’s like to work on the advisory side of a Big 4 firm.  Typically, if there’s time to discuss and there’s mutual interest in the exchange, I’m immediately bombarded with a slew of follow-up questions like:  What do you do exactly?  How does one get into that line of work?  How much do you travel?  Is it a good career path?  Is there such a thing as work-life balance?  Is it challenging?  Do you think I’d be good at it?  And so on…

The reason I’m so consistently willing to discuss my perspective with so many people, especially young professionals, is that I was once in their position and had many of the same questions.  When I received answers to my inquiries from people in the profession, many of whom continue to this day to be my friends, I was intrigued.  After some time contemplating the potential challenges that such a job would offer, I decided to pursue a chance opportunity to join the ranks of Ernst & Young LLP.  I’ve been with the firm almost three years now.  Looking back, I feel as though the six years of professional experience I had accumulated prior to joining E&Y, although invaluable on many levels, simply did not hold a candle to the client exposure, professional networks and shear rapid-fire experiences afforded to me in my present capacity.  I must confess, however, that this outlook reflects how I feel today, which wasn’t always the case.  Reaching this point has taken an immense amount of patience, hard work, resilience, ambition, and even a little luck.  Yes…I said luck. 

To be clear, this article has not been written under the guise of any Big Four recruiters.  Its goal is not to solicit top talent or self-promote services offered or whatever other angles you might have running through your head right now.  I respect all of the Big Four firms, especially mine, a great deal but feel that the only way to offer up a truly unbiased perspective on the lifestyle is to provide genuinely candid insight.  The primary purpose of this article is to offer a balanced perspective to those who may be interested in such a career path regardless of industry focus or subject matter area. 

The article is structured with bold headings and key takeaway bullet points for those only interested in a quick scan.  Feel free to bounce around if you already have a solid understanding of certain sections.

Chapter 1:  Advisory Services
A former colleague of mine summed it up with the following catchphrase:  “What we sell is the space between these two ears.”  This bit of Yoda-like wisdom was followed by a slowly pointed finger to my forehead.

At its simplest form, “professional services” is an industry where firms like Ernst & Young provide clients with the right subject matter experience via resources at the right time and place and, of course, at the right price.  As advisors to industry, we provide a valuable benefit, since large businesses are regularly confronted with a bevy of challenges that range from the commonplace, such as not having the internal subject matter experience needed in order to execute upon critical initiatives, to the less mundane, such as perhaps a regulatory mandate to leverage independent third-party consultation.  The list in-between these two examples are vast to be sure and vary greatly in complexity.   

Organizational Structure:
Now that you understand the demand from the client side, let’s take a look at the delivery or firm side.  Firms as you might expect are structured in such a way as to meet client demand.  Ernst & Young, like any of the Big Four or large professional services firm, is composed of a series of “practices” or unique groups of resources, ranging from a handful of people to several hundred, which tout similar subject matter experience.  These practices are then lumped into larger organizational categories that support the firm’s overarching strategic vision.  Confused yet? 

Here’s an example which should clarify things for you a bit:  I’m part of the “Program Advisory Services” practice, or PAS for short.  My practice then rolls up into the “Risk Advisory Services” service line.  Let’s forget what these groupings actually do for the time-being.  Now, imagine twenty (random number) other practices such as PAS which falls under the RAS umbrella.  Hold that thought.  Now once again try to imagine ten or so other service lines like RAS with once again a bunch of sub-service lines such as PAS.  These groupings also vary from country to country and region to region depending on client demand in that particular geography.  These “service lines” then roll into four major divisions which are: Assurance, Transaction, Tax and Advisory.  Confusing, right? Ah, such is life.  Here’s the cherry on top!  New practices form and old practices consolidate just about every year.  Want to know why?  It’s no secret.  Because they have to so in order to remain current with the rigorous demands of an ever-changing market landscape. 

Here’s an example:  Imagine for a moment that a new regulation to govern “Wall Street” firms is passed and will be enforced in one year’s time.  This is a possible scenario, I might add, given today’s market conditions.  The new regulation will have a significant impact on these companies for obvious reasons.  It may be a “bad luck” scenario for companies, but it could be a “big opportunity” for their professional advisors.  This event could provide the foundation for a “business case” to create a new practice in order to address this potential need of the future.  Once the business case is formally presented and a firm commits to the investment…Recruit, train, sell and bam!  We now have a new practice with a new focus.  This exemplifies why professional services firms cannot have a flat or rigid hierarchy.  It is for that main reason that such a fluid organizational structure must be in place.  It may not look pretty on an organizational chart (that is if you could even find one) but I assure you there is critical logic behind this labyrinth of practices.

Here’s a visual that will hopefully bring things further into focus for you:

Key Takeaways:

• Advisors at professional services firms sell the space between their ears.  Industry perspective, experience and subject matter experience are what clients are really paying for.   
• Firms are equipped to address client demand by providing the right resources, at the right time and place and at the right price.
• The professional services industry is a very dynamic one, which does not follow a flat or rigid organizational structure.

Chapter 2: Assurance vs. Advisory
This section is specific to Ernst & Young, but more than likely holds true for other firms in the Big Four.  The content intentionally touches on only two of the four divisions, since its purpose is to help further distinguish the concept of organizational groupings used in major professional services firms and to provide some practical perspective on their differences. 

The first division we’ll take a look at is “Assurance”.  The second is “Advisory”.  Assurance mainly encompasses classic audit services, including financial audits.  Assurance is a very mature service offering with very well structured methodologies and reoccurring annual audit business; it holds the top spot in terms of the most annual revenue generated for the firm.  Advisory, on the other hand, is more similar to a classic management consulting mold.  It is not nearly as consistent as Assurance work, but it is one of the fastest growing offerings within the firm.

Compare & Contrast:
You might be thinking at this point, “Which group is right for me, Assurance or Advisory?”  Well, they are significantly different from one another.  Hopefully, the following explanation sheds some light on this early career decision that you’ll need to make.  Assurance work is typically very analytical and often time-consuming.  Auditors during the busy season can easily spend sixty or more hours per week combing through data, searching for anomalies, and ultimately preparing reports that highlight their findings to a client.   Depending on the engagement, assurance work generally staffs younger personnel to handle the lion’s share of the research, which is then reviewed by seniors or managers and ultimately signed off by a partner before the findings are presented to a client.  This type of structure where engagement teams utilize less experienced personal to do the bulk of the work, with oversight provided by senior management, is called a leveraged model.  The leveraged model is an optimized cost model for clients, which generally yields higher profits as well.  The work is very well organized and methodically run with time-tested frameworks, checklists, etc. 

Based on my conversations with audit colleagues within the firm, this type of work can be quite grueling at times and not very dynamic in the sense that, once mastered, the process becomes rather routine.  However, I know many senior resources who absolutely adore the audit career path they’ve chosen and wouldn’t have it any other way.  Assurance work is also a great opportunity for young graduates who are looking to get into the field of accounting, audit, etc.  Because of the leveraged model and consistently growing demand, Big Four firms are constantly recruiting for these types of positions.   

Advisory work, on the other hand, typically staffs a larger number of seasoned resources (Deleveraged Model) to address complex business challenges that don’t always fit neatly into a service methodology.  This type of work requires resources to be keenly aware of all the challenges a client is facing, whether the client recognizes the challenge or not.  Resources must have the experience and skilled ability to tailor a solution that meets a client’s needs, which can sometimes mean deviating from an “industry best practice.”  The key is to find the right solution for the client at a single point in time and given all possible variables. 

Some Advisory engagements can be just as grueling as Assurance engagements, but the dynamic is significantly different.  For instance, Assurance work typically focuses on producing audit reports or official attestation to formally document findings for a client.  As you might expect, these reports carry with them significant implications.  Clients have a tendency to be very cautious in their interactions with auditors, since it is essentially the auditor’s job to ask probing questions to understand the current state to support their findings.  Relationships, while typically collaborative, can be underscored by a tension which is rather difficult to explain.  In fact, I would love to hear from my Assurance counterparts in order to gain their perspective on this particular point. 

Advisory work, on the other hand, requires extensive interaction with the client to support them collaboratively in reaching a successful conclusion to their business problems.  Interactions with clients can quickly develop into strong, long-lasting relationships, since Advisory work in many cases requires working closely together in order to reach a client’s goal.  The essence of Advisory work is essentially to advise the client based on the advisor’s knowledge. 

Key Takeaways:

• Assurance typically means you’re formally telling the client what you found via an official attestation or report.  
• Advisory typically means you’re advising the client on ways to help that client with a problem via a report or collaborative interaction.  
• The type of channel you work in will more then likely determine the type of environment you’ll face.  You can imagine why an Assurance client may behave differently than an Advisory client based on the examples mentioned earlier.    

Chapter 3:  Getting In
Joining a Big Four firm or any reputable professional services firm is extremely challenging.  They look for the obvious traditional strengths in candidates such as good attitude, subject matter experience, education, etc.  But there are major differences between hiring a candidate straight out of school versus hiring an experienced professional.  

When graduates or inexperienced candidates are fortunate enough to be brought in for an interview, it is usually based on impressive academic credentials and successful internships that have caught the hiring manager’s eye.  Education is a major qualifier that is used to qualify candidates right off the bat.  However, once a candidate is brought in for an interview, the entire focus shifts from academic to interpersonal qualifications.  The hiring manager will be focused on three elements (not necessarily in this order):

1. Social Competencies: Can this person hold a dynamic and/or challenging conversation?  Is he or she likeable? (This is extremely important when you consider the significance of client interaction)  How effective is this candidate’s communication skills?  Will the candidate be able to interact well with other team members?  Does he or she exhibit leadership potential?  Does the candidate have the ability to sell him or herself?  (This is crucial, since if you cannot sell yourself to the hiring manager, how will you be able to sell yourself to the client?)  These are some of the critical questions that will be running through the hiring manager’s head as you speak and react to the questions asked.  How you sell yourself is vital in this interaction.

2. Experience and Potential: This trait is a bit more traditional and expected but equally important.  Does this candidate possess the prerequisite skill sets to get chargeable work (i.e.,billable to a client for services rendered) right out of the gate?  Does he or she possess experiences that may be marketable to a client?  Does the candidate have the potential to be successful in the role? 

3. X Factor:  Though the bulk of the interview sessions will focus on your social competencies and experience, I feel there’s one more element that’s always considered in these interviews.  I like to call it the “X Factor.”  The Big Four and other major professional services firms all hire “Type A” personalities or “High Performers.”  This means that for any given role that is available, there could potentially be a large number of candidates with exceptional competencies and experience.  How do you separate yourself from the pack?  Well…Highlight something unique, something uncommon, something that will stick in the hiring manager’s head once you’ve left the room.  For me, my X Factor was highlighting my business start-up ventures while still holding a full time job and going to school.  What’s your X Factor?  Give it some thought, as it could end up being the tiebreaker between two highly qualified candidates.

When hiring experienced candidates, I feel that the same qualifiers listed above do apply, but the trait that now carries the most weight is the candidate’s ability to sell.  The candidate must posses either the ability to sell work to clients, or he must bring with him a book of business or a major network of opportunities.  Although you will still be utilized for your superior subject matter knowledge and leadership, your success ultimately will be judged by your ability to generate revenue for the firm. It is for that reason that many seasoned subject matter professionals who try to make the leap into the Big Four world are denied entry because of their lack of sales experience.   

Of course, the sequence of importance when it comes to these elements varies from practice to practice.  A more mature practice may already have a robust pipeline of opportunities, and the focus may be on hiring resources to deliver “sold” work.  A less developed practice, on the other hand, may need seasoned rainmakers to help stabilize sales goals and/or grow the pipeline.  It all depends on the need at the time.

Chapter 4:  “Engagements” Defined
While “Project” is the commonly used vernacular across corporate industry, “Engagement” is the internal buzzword used by professional services firms.  It basically means the same thing.  More specifically, “Engagement” is the terminology used to describe a project that will be worked on for a client.  Engagements vary in size and staffing requirements.  Staffing resources for engagements typically funnel through a “Resource Scheduler” who keeps track of all resources available at any point in time.  The early stages of an engagement require interaction between the client and the “Engagement Manager,” the resource who is charged with organizing, kicking off and controlling the project, typically a senior resource, in order to negotiate the terms of the project. 

Once the timeline, budget and resources needed have been established, the engagement manager will simultaneously create a statement of work (SOW), a document which legally establishes the expectations of the project, and will reach out to the resource scheduler in order to view available personnel and formally obtain the dedicated resources needed for the engagement.  Depending on the type of project, these resources can be obtained from multiple practices and even different countries if necessary.  Once the SOW is signed by the client and the resources obtained, the project can then officially commence.

Chapter 5:  You have a paycheck but you don’t have a job
Working at a professional services firm is a very fast-paced and demanding environment where superb networking abilities mean a better shot at advancing up the ranks.  Even if you’re a newly added hotshot to a firm, it does not guarantee that you will jump onto a major client engagement right away.  This has to do with a number of critical factors such as:

• Sold opportunities may not need your type of skill set.  
• Sold opportunities need your skill set but someone else in the firm beat you to the punch. 
• Sold opportunities need your skill set but the client did not feel you were the right fit for the project.
• Sold opportunities need your skill set but the internal engagement manager did not feel you were the right fit for the project.
• You may need specific training to position yourself for an opportunity.
• There’s a lull in opportunities within your practice.

Once you join a firm, it is imperative that you network with as many people as you can.  Introduce yourself to everyone in your practice and in other practices.  In fact, introduce yourself to as many people in your firm as you can!  Take people you meet out to lunch or coffee.  Get to know colleagues and tell them what you’re capable of and always offer to help out with anything you can.  Sound a bit unsettling?  It can be. 

When I first joined Ernst & Young, I was “unassigned” (not on a billable project) for the first month-and-a-half.  It was unnerving, to say the least, but it does happen.  The market had slowed considerably, and the project my partner had lined up for me had fallen through. It is at that time when a new hire has a choice to make.  Sit back and wait to be placed somewhere (not a recommended option, as you never know where you might end up), or proactively market yourself and build up your knowledge.  I chose the latter by taking internal educational modules and classes (I took so many that I met my three year target in several months) and networking with as many people as I could. 

Over a two month period I had scheduled and met with over thirty different Partners, Senior Managers and Managers just to introduce myself and get my name out there.  It was out of those interactions that I stumbled upon a few leaders who appreciated my unique skill sets and took me under their wings.  An opportunity eventually came up which landed me in California for a successful two-month gig.  This project helped build up my personal brand within the firm.  From there, I was immediately placed on a new opportunity.  This was due to my success on the previous engagement and recommendation from the previous engagement manager.  This is what I like to call the “Snow Ball” effect, where you build brand momentum from one engagement to the next.  If you can manage to keep this momentum going, you’ll be sought after within the firm and frequently pitched as the right candidate to clients.   

Key Takeaways:

• Be prepared for the reality that you might not jump onto a major client right away.  It may require patience before you get your first major opportunity to shine. 
• You have a paycheck but you don’t have a job.  It is your responsibility to be proactive and position him or herself for new projects.  
• Build your professional network and relationships, as they will pay dividends when the time comes to land new projects.  
• Create brand momentum from one engagement to the next so you become a desirable resource to senior leadership within your practice. 

Chapter 6:  Client Relationships
No two clients are alike.  Remember that.  They each have own personalities, expectations, quirks and experiences.  You’ll be faced with rational clients with great personalities and realistic expectations.  You’ll also face irrational clients with difficult personalities and sometimes unrealistic expectations.  Client types are infinitely different from one another.  You need to be able to work with all of them in order to help them and your team to be successful.  At the end of the day, you must earn the client’s trust in order to level-set expectations so both parties are getting something out of the transaction.

When it comes to relationships, the goal will always be to strive to build a long term relationship with any client.  One rooted in trust above all.  These relationships can yield mutually beneficial results for both the client and the advisor alike.  Short-term relationships happen as well with the hope that one day they will blossom into something sustainable.  A top tier firm worth its salt will always think longer term and never think of a client as quick boost in revenue.  That type of behavior simply devalues an organization’s overall brand which really doesn’t help out anyone in the long term.  

Exposure:
With all that said, exposure to these personalities and challenges is extremely valuable.  Organizational leadership style has a tendency to trickle down to employees.  In many instances, the manner in which a client behaves is due to the fact that he or she is simply a product of his or her own environment.  There are always exceptions, but you’ll be exposed to numerous environments and get a sense as to why certain styles work for some organizations and not for others.  You will carry this exposure and these insights with you to every client or job you tackle in the future.  In my opinion, you can’t put a price tag on this type of exposure.  Once you get a taste of these rapid-fire experiences, it will be hard to find a job anywhere that will build up your experience faster.  Working on successful projects across multiple Fortune 500 companies makes for unbelievably powerful resume fodder.   

Key Takeaways:

• You’ll be faced with very different types of client.  You’ll need to adapt.
• Successfully establishing a relationship with a client requires a tremendous amount of observational abilities, patience, timing and trust.    
• You’ll be exposed to how companies work, which ranges from brilliant to draconian.   Learn from them!  Take those experiences with you from client to client.

Chapter 7:  Key Metrics
I touched on chargeability earlier but felt it was important to expand upon the topic, given its underlying significance.  In any major professional services firm, the primary metric to determine how successful you are over the course of the year is that of “Utilization”.  This metric essentially indicates how profitable you are.  More precisely, it is the comparison of your charged hours against your available hours.  There are two different calculations for utilization: 

• Full Utilization: includes all available hours, including vacation.
• Effective Utilization: subtracts vacation time from available hours.

Here’s an example for you:  40 (available #hrs per week) x 52 (Weeks in a year) = 2080 – 80 (2 weeks of vacation).  I chose 2 weeks as it rounded out the number nicely.  It does not represent reality.  That gives us a total of 2000 hrs of available time for the year.  Let’s say that you charged 1500 hrs of time to client work over that same year. 

Let’s do the math:
1500 / 2000 = 75%. 
75% = Effective utilization 
1500 / 2080 = 72%
72% = Full utilization

Now that you know how it’s calculated, think about the implications of having a personal target of 75% full utilization over the course of a year.  Play with the numbers.  Input 5 weeks of vacation time into the formula and see how much it affects your percentage.  The purpose of this exercise is to demonstrate not only how the figures are reached but what that means for you personally.  Think about it:  Having a consistent 40hr/week billable time for an entire year is not always a common situation.  You will have good months where you charge much-needed overtime hours to get the work done, but there will also be those months where you might not be charging anything at all.  Being “on the beach” for a significant period of time could bring you down just as quickly as that overtime earlier in the year brought you up.  It’s something you always need to have your eye on, as you better believe the partners will. 

Other Keys Metrics:

• Sales:  Managers and above are held accountable for reaching yearly sales targets.  Meeting, exceeding or missing sales goals will play a part in determining your annual rating.  Sell, sell, sell!   
• Quality:  Client deliverables and internal initiatives generally are reviewed by peers or those senior to you in order to ensure the materials are of the highest quality.  Not producing high-quality deliverables is something that could impact your brand negatively.  Again, this too will play a role in your annual rating.  
• Personal Goals:  Every person is responsible for establishing personal growth goals with his or her counselor (everyone gets one).  Once a goal is documented and approved by the counselor, you will be held accountable for meeting it by the end of the fiscal year.  For instance, most practices require team members to obtain some sort of professional certification to bolster their marketability.  If you set one of your goals to obtain the PMP certification, for instance, and you end up not obtaining that certification during the originally targeted timeframe, you will be held accountable.    
• Extracurricular: “Extracurricular” essentially focuses on additional accomplishments over the course of the year which may not necessarily be client-based.  Think of these as brownie points.  For instance, I teach a project management course every 3 – 4 months to internal employees.  Although I enjoy doing it a great deal, my main motivation behind this activity is to help differentiate my brand from my peers.  
• Administrative:  The final metric I wanted to bring attention to is that of administrative activities.  This is something that blindsides many new hires to the industry because they generally have no idea how much administrative overhead is involved from week to week.  Every week, you are required to submit a timesheet detailing how you spent every working hour of the completed week.  There are also frequent mandatory online courses, training sessions or independence confirmations that must be taken on a periodic basis.  You’re also in charge of your own expenses and credit card when working on an engagement.  Just because you use a company credit card does not mean you don’t have to worry about it.  I regularly spend 1 – 2 hours per week submitting my expenses.  I can’t tell you just how infinitely painful this process is.  However, it is a necessary evil and does become easier over time because it tends to evolve into second-nature behavior.

Chapter 8:  Is it right for you?
A career path in the world of professional services can yield very exciting and fulfilling life experiences.  It places you on the fast track to obtaining impressive professional credentials that can very well propel you to high places.  This statement holds true for both young and experienced professionals alike.  However, it’s not all rose petals and blue skies. 

As in any career path one must always consider the work/life balance dichotomy.  It’s a critical element which undoubtedly plays a role in everyone’s career decisions at one point or another.  I believe entering into the world of professional services is oversimplified by labeling it as just a “career path”.  It’s a rollercoaster ride of unparalleled excitement one minute, which can be punctured by more sobering realities the next, all of which are experienced at break-neck speeds with little to no time to recoup.  I firmly believe it takes a special type of person to thrive mentally in such an environment.  Can you balance the rigors of the lifestyle, which often requires extensive travel, long hours and time away from your family and friends?  The field pretty much guarantees at least 2 out of 3 to occur on any given engagement. 

Please do not misconstrue this perspective as blatant discouragement from pursuing the profession.  Like I mentioned early in the article, I personally adore the field and all the professional/life experiences it’s afforded me thus far.  I wouldn’t have it any other way.  I just feel it is important to strip away the mystique because consultants are often perceived or imagined as having glamorous lifestyles where they jet set around the world with their big paychecks and not a care in the world.  Don’t get me wrong, there are tremendous advantages to the lifestyle.  But just as there are advantages, I want to make sure the disadvantages are equally transparent.  With that said, I feel the following would be a worthwhile exercise for young professionals.  I’ve put together a list of pros and cons, as seen through my eyes, to provide some meaningful decision-making context. 

Pros Vs. Cons:

My hope is that this article provided some unique perspective which you may not have received before.  And if you have, then good, it means you’ve been doing the necessary research in order to make an informed career decision.  Just like any other career path, professional services may very well provide the types of opportunities or challenges you’re personally looking for.  On the flip side, it may not.  In any case, the materials presented before you should have provided enough meaningful context to decide whether or not you’d like to learn more about the profession or perhaps steer away from it altogether.  At the end of the day, the most important thing is that you do what’s right for you and your family.  It’s not for everyone.  If it’s right for you….Congratulations!  Strap on your safety belt and get ready for the ride.

The message from this global financial crisis is loud and clear; the system that we currently have is flawed, susceptible to produce crises and prone to systemic risk.

As a first step, we will have to fully address the SYSTEMIC RISK and the accumulation of excesses in global the economy that tends to build up during the period of strong growth. The hope is that the market participants, the governments and the regulators around the world have learnt their lessons from the ongoing crisis and will take this as an opportunity to reconstruct the financial system and the way it operates. Although one could argue whether it is safe put your faith in the ability of the market, the governments or the regulators to fix the SYSTEMIC RISK issue. No doubt, they have bungled up in the past and they would probably do it again. But that is not the point. We all make mistakes and learn from it. So we have to give them the benefit of the doubt. I hope we are all done with the blame game. The regulators and politicians were pretty quick to put all the blame on the banks, the investors, the insurance folks, the rating agencies and everybody else but not themselves. How convenient.

Honestly speaking, we are all to blame for this financial crisis including the folks on the main street who happily leveraged themselves not worrying about the shortcomings. In fact some folks on the main street got very comfortable with the idea of living on borrowed money without having the ability or resources to meet their obligations. And the reason for that was simple they figured that was the norm.

In the immediate aftermath of the crisis some politicians are proposing the need for creating an early warning system and let the IMF be at the forefront of it. You know, one can’t help but wonder if it’s nothing more then a wishful thinking considering the fact that IMF itself didn’t see this CRISIS coming. Besides that it is no secret that IMF has screwed up in the past and one cannot with certainty say that they won’t slip-up again. And to expect that the ratings agencies or others won’t make mistakes going forward is probably nothing more then a wishful thinking. That’s the reality.

The economy goes through boom and bust cycles one where we see a decade or more of strong growth a.k.a BOOM TIME followed by a flat or negative growth a.k.a. DOOM TIME. Generally during the boom time the global economy tends to get obese without worrying too much about the excesses it has managed to accumulate. The excesses tend to clog the vital arteries connecting the global economy to the engine of growth. It also makes the market participants complacent about the risk and shortcomings hence the boom and bust cycles become a regular event. We have had Tech and Real Estate Bubble Burst. And now the Governments in the developed world as well as the developing world are busy creating a massive debt bubble through heavy government borrowings which has reached a breaking POINT and there are no guarantees that this bubble won’t burst.

What the ongoing CRISIS has taught us is that the current system is flawed and the time has probably come for us to start looking at ways to reconstruct and upgrade the whole financial system incorporating the realities of today’s world.

This CRISIS will probably be a game changer. Going forward the developing countries will ask for more influence, oversight and control over how the global economy is managed, supervised and operates. The developed countries will have to give away a lot of their influence and control over how the global economy is run. And the multilateral agencies including of the World Bank, IMF will have more representation from the developing world reflecting the reality of the changing world.

We live in a very interlinked world and this is why we need to create a system with cushions and additional growth engines that will complement each other and are able to absorb the systemic shock. The economy will work better if it has multiple engines of growth.

One of the ways to create multiple engines of growth could be through a Common market community (CMC) model. The common markets as a platform will drive growth by incentivising trade removing barriers and making inter-trade between the regional economies operating within the common market easier. The Common markets connected to the mainstream global economy would cushion and insulate the individual economies operating within the common market from a disruptive global economic downturn. It could also provide them a safety net to fall back on in a global recessionary environment.

The common markets may also work as a Distribution Network Operator (DNO) that will not only distribute growth to individual economies but also filter the harmful excesses making sure the vital arteries connecting the growth engines do not get clogged and the overall economy remains healthy.

We are already seeing a rapid increase in the number of regional and bilateral free trade agreements (FTAs) or preferential trade agreements (PTAs) being signed. According to the UNCTAD data the Intraregional trade in a number of regional blocs of developing countries has been growing faster than their extraregional trade. The common markets could be the obvious next step.

There is also ample historical evidence of regional trade. These trades were pretty robust worked well byandlarge resistant to the external disruptive forces without a single common currency or monetary union. So the common markets should work and going forward it will add value.

Besides creating multiple engines of growth through a CMC model, we will also need tools that will allow us to shed the excesses accumulated during the boom time without us having to go through the PAIN of Recession or Depression. The economy needs a growth that is sustainable. A growth that can be managed, supervised and where an excess can easily be removed.

The recent approval by European Commission of an enhanced European financial supervisory framework based on two new pillars: a European Systemic Risk Council (ESRC) which would monitor and assess the risks to the stability of the financial system as a whole (”macro-prudential supervision”), and a European System of Financial Supervisors (ESFS) consisting of a robust network of national financial supervisors working in tandem with new European Supervisory Authorities (”micro-prudential supervision”) is probably a step in the right direction. A good oversight and smart regulation should be welcomed. The concern is that going forward the policy makers could burden the system with excessive regulation which could have detrimental effect.

The central banks, the government agencies and the market participants will have to get better at spotting the excesses building up in the economy or particular sector in the economy. The Central Banks will also have to widen their target range and may need to get more proactive. The idea is to create a framework which could be used to quickly identify the excesses building up in a particular or specific sector of the overall economy and to remove them by following a swift course of action before they start clogging the vital arteries connecting the global economy. This can be achieved if the central banks, the regulators, the ratings agencies and others get more proactive in monitoring, supervising and managing the global economy. All the parties with vested interest will have to work together.

The folks on the main street will also have to realize that if you keep eating without maintaining a strict regular healthy diet and exercise regime you would most probably end up accumulating excessive fat and there is no point blaming other for it. We know all what pain some folks have to go through to shed the excesses. The question is why go through that pain especially when people are able to maintain a good health by following a regular healthy diet and exercise regime. There has to be a realization that the era of excess is gone.

The consumers (especially the American and British consumers) will have to learn to save more and live within their means. We are beginning to see that folks on the main street are starting to save a little bit more. Which is a good news but in the short term it also means that consumers will tend to hold their cash pretty close to their chest and against this back drop it’s hard to envisage a rapid pick up in consumer spending on the level seen in 06 or 07. But I’ll happily sacrifice a rapid recovery that could easily falter to a sustainable one.

A healthy and sustainable economy will mean more businesses starting-up or expanding, more hiring, increase in trade and the certainty about the future.

Do you find yourself diluting your verbs to make a point? Have we all lost the ability to be clear and direct in our writing?

Let me give you an example. Would you prefer this sentence? We now have the need to make a recommendation to our management to purchase the new office furniture. Or would the following sentence be more appealing? We need to recommend that management buy the new office furniture.

Let’s try another example. Compare these two sentences.

1.)  He was responsible for collecting all the information for the quarterly report.
2.)  He collected all the quarterly report information.

Can you see how using verbs in their basic form is more clear and direct?

Straightforward, direct language is far more effective than “smart-sounding” language. Clear writing will lead the reader forward almost unconsciously. Take your reader where you want them to go. Try not to make them go backwards to understand your intent.

Here are a few more common examples of diluted verbs and their stronger form:

• make a decision decide
• reach a conclusion conclude
• perform a study study
• give assistance assist
• enter into a discussion discuss
• do an inspection inspect

Readers today are too busy to decode our writing. Make sure to state your purpose in a clear and concise manner. Don’t be afraid to tell the reader exactly what you want them to do–buy, try, own, give, take, and experience!

You may be unlikely to reach a conclusion in most contexts where multi-syllabic words, complex syntax, and multiple clauses lend themselves to making a decision regarding unconscious and effortless reading on the part of your customers.

See what I mean!

Some of my friends and colleagues are busy trying to figure out what could be the shape of the most eagerly awaited recovery. The debate is whether we are going to see a V, W, and U or prolonged I__I shaped recovery.

There are some who are suggesting we are probably going to see a V shaped recovery then there are those who are predicting a U or prolonged U shaped recovery and yes there others who believe we might see a W shaped recovery. Boy! Go Figure. Someone has to be right but then I wonder isn’t this all a bit premature? Aren’t we getting ahead of ourselves on making such prognoses or am I simply being Silly?

Let’s find out, shall we?

The shape of the current economy could probably give us some clues as to what the shape of the recovery might be or at the least we could rule out some.  To get a good estimate of the health of the economy let us look at some of headline news during the week ending Friday, the 15^th May 09.

We will start with the numbers out from the European Union.

According to European Union’s statistic office the GDP in the 16 member Europe region fell by over 2.5% from the fourth quarter, the steepest decline in over 12 years. This was above the market expectation of 2%. German economy shrank by over 3.8% from the fourth quarter of 08; the Italian economy by close to 2.4%; the Spanish economy contracted by around 1.8% in the first quarter of 09; the French economy by around 1.2%. Some pretty grim numbers, no doubt. The Euro zone inflation is at record low of 0.6%. Going forward the rising unemployment will dampen the consumer confidence and there is a strong possibility of inflation remaining lower the ECB’s target of 2%.

And how are things at the corporate front?

ING announced higher then expected net loss of Euro 793 million in the first quarter of 09. Allianz reported a fall in profit by over 98%

So how is the UK doing?

According to the Council of Mortgage Lender’s, Home repossession surged by over 51% in the first quarter of 09.  Rents for commercial properties in London fell by over 25% over a period of 12 months. The prognosis is pretty grim especially if we take into account a 56% increase in the number of companies going out of business in England and Wales in the first quarter of 09. With unemployment expected to reach 3 million by 2010 one can safely conclude that we are looking at a slow paced recovery.

Let us look at the US and others.

US retail sales dropped more then expected by 0.4% in April after a 1.3% drop in March. The new mortgage applications dropped to the lowest level since March. Consumers are mostly cash -strapped and to hope that they going to keep spending lavishly is probably a wishful thinking. On the unemployment front the news isn’t good either. The recent announcement by GM to slash its dealership network by around 1,100 and Chrysler by around 789 paints a pretty grim picture.

What about others?

According to FSS Russia GDP shrank by almost 23% on quarter – on - quarter terms.

China seems to be doing better then the rest. The domestic investment has increased significantly but it will be unwise to assume that China be able to recover in Isolation. The exports and import number out from China are not that encouraging. With the current momentum it is safe to assume that China could grow at 7% or there about in 09 but it won’t be a position to save the world. The data out from China on the 11^tth of May suggests very strongly that China has slipped into a deeper disinflation. Consumer prices fell by over 1.5 percent, factory gate prices fell by over 6.5% so it’s highly unlikely that we are going to see a significant increase in demand for raw materials from China.

There seems to be a slow paced growth momentum building in Asia but it will be unsafe to assume that the recovery will be rapid and the growth will be on a scale seen before.

Something to think about

When talking about any recovery I think we should keep in mind that going forward the central banks of the world and the governments will have to raise rates and taxes to fix their balance sheet and to deal with hyper inflation. And on top of that we are going to be overloaded with Heavy Regulation. That’s the aftermath. And these are not the factors that will support speedy recovery on a big scale in fact just the opposite; it will choke off the recovery. It’s pretty much like throwing a spanner into a wheel. There is so much uncertainty ahead. I think we can safely rule out a V shaped recovery. We saw most markets get back in the Red again (at least for now) the week ending Friday, the 15^th May 09 on growth and earning concerns probably the markets were pricing in a pretty rapid V Shaped recovery which they now believe is extremely unlikely hence the retreat. One can’t help but wonder as to whatever happened to all the talk about the negatives being priced-in? Probably the investors are beginning to realize that the prices rose too fast without any solid fundamental support or justification for it and the massive rallies were overdone. I’m not for a moment assuming or suggesting that we are not going to see speculation driven rallies.

Going forward

We are not done with volatility yet. We are going to see more mixed data come out in the next quarter which will probably swing the markets both ways. The hope is that the investors will not loose foresight and look at the story behind the numbers and not get carried away by sheer sentiments like seen in the past.

All the talk about the shape of the recovery is probably premature and a clear sign of the market getting ahead of itself. We should be able to get a good estimate of the health of the economy after the H1 numbers for 2009 are out. It should serve as a good us a pointer for 2009. It should also tell us if the worst is over or there is more to come. Looking at the first quarter numbers we could safely assume with that recovery most likely months away.

The bottom line is what the markets need is a sustainable recovery that won’t slip out of our hands. And a slow paced recovery will probably be a blessing in disguise for the global economy. It will take time to reconstruct the financial system which we all know now was pretty flawed to begin with and  prone to boom and bust type events.

The shape is secondary honestly speaking I’ll take it in whatever shape it comes.

Forbes magazine had an interesting piece about large business acting as lenders to small business. This comes right behind the biggest credit meltdown in history. This lending comes in the form of retail financing or vendor financing, and in some cases, in the form of corporate venture funding. In 2008, as per NVCA, corporate venture funding arms amounted to 19.2% of all venture deals, an amount that works out to $5.4B out of total deals worth $28B. Similarly, the Forbes article pointed to $52B raised for corporate non-venture financing.

What does this mean for the shareholders in these corporations? Let us look at a few numbers. A stock screen on Yahoo for companies with positive free cash flow, and picked companies that have positive cash balance on their balance sheets reveals about 896 stocks, and most notable among them being Berkshire Hathaway with $16440 of cash available per share. Since free cash flow does not include the cost of debt servicing by these companies, one should also look at the total debt assumed by these companies. A vast majority of these companies have very little to zero debt on their balance sheets. So, to keep matters simple, let us assume there is no debt servicing expense.

The stock screen reveals that, on an average, after excluding outliers such as BRK-A, each company has a 15% return on equity, and $1.3B of cash in the bank. There is a total cash position of $1.2 trillion. In other words, the $5.4B invested by the corporate world is a drop in the bucket. In an earlier post, I had touched upon the reasons for decreased semiconductor venture funding. The current economic conditions preceded by prior bust cycles make corporations cautious and hoard cash. But …

Imagine the possibilities:

1. If average ROE is 15%, the corporation could reinvest the cash in its core business and get a 15% return. This is possible only if there are opportunities in the current line of business.
2. Another avenue for the use of this cash is investing in upcoming ventures. Most new ventures are funded on small slivers of capital. Therefore, this may not be a workable option.
3. Given that corporate AAA/BAA bonds are currently yielding 8%, lending to other businesses is the next best alternative.
4. Another possibility is vendor financing for small businesses and new ventures. Instead of using the cash to take an equity position in these businesses, the corporations would offer products and services with financing terms comparable to the BAA bond yields.
5. Finally, the capital can be returned to shareholders, thus boosting the shareholder returns.

It seems that the possibilities of vendor financing and dividend payouts are possibly the best alternatives in the current bleak economic scenarios. Will corporations be the bankers of the new finance era? What will tilt the balance of power? Stay tuned.