CARICRIS

Case Analysis Submission

Prof. S. Venkataraman

In partial fulfilment of the requirements for the degree of master’s in business administration
EPGP – 10

Group 4
S No. Roll No Name
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Indian Institute of Management - Kozhikode

International Business
1. Do you agree with CRISIL's choice of entry mode into the Caribbean market? If not, how would you
approach it? If yes, why would you support it? Discuss the pros and cons. Extend your analysis to also
include the ownership structure

Yes, JV was the right choice of entry mode as Joint Venture into Caribbean market due to,
1. CARICRIS were not looking for immediate profit as their research finding was it would be profitable
only 4-5 years. JV would have easy for maintain the cash flow
2. Fear of low rating by financial agencies which may impact their business. It was something like they
may be hiring the rating agency to kill their own business. Which Made the rating difficult to get
adopted & may need time to convince the customers.
3. Bias towards developed-country products and services. It would have been difficult for CRISIL to
establish themselves as wholly owned subsidiary in West indies.
4. Caribbean was very far away from India.
Due to local regulations CRISIL have to hire locally & there was lack of local expertise. This risk can be
mitigated by providing training by experts from CRISIL.
The major shareholders are IDB (Inter-American Bank) , the Caribbean Development Bank (CDB), CRISL
whose majority-owned by Standard and Poor’s, and central banks in the region. The IDB provided grant
and investment financing to help launch the company. As most of the stake of holders were local financial
agencies, due to which there will be concern of conflict of interest and customers may doubt that rating
may be favoured /biased to investors. This may lead to integrity issue.

2. How do we analyze the competition effect in this case? Was the market potential correctly assessed?

Competition Assessment:
International rating agencies like moody, Fitchv already existed in the market. Financial agencies may not
wish to take one more service. Existing financial who are using international rating agencies may not wish to
take service as they may not see any value addition and will increase their cost. It will be difficult to
convince the new customers (financial institutions) to go for rating as they may be paying to get their
business killed.
Penetration of ratings thin in the Caribbean (only 45 issuers from 19 countries)
A.M. Best maintained about 35 ratings, and in Costa Rica, two domestic rating agencies rated about 140
debt instruments issued by 25 issuers
Local ratings were preferred over global ratings as they provided credit profile of investment opportunities
on a magnified scale
It is imperative for a startup to calibrate the rating scale and methodologies as per the existing local CRAs
and other established competitors.
S&P a global CRA used to conduct seminars under its own banner thus, has established a strong brand
equity.
New CRA firms can leverage their relationship with such global CRAs to gain access to various government
clients
The global competitor’s price scales are used as reference for any new firm to develop its own pricing
strategy
The competitor’s progressive strategies and policies also contribute in shaping the regulatory environment

Market Potential Assessment:

Our analysis is that there is currently no competition. They will definitely get first moving advantage as they
will be the first CRA with no other existing in the Caribbean region.
Diverse growth rates, GDPs and debt levels
Many countries had high levels of debt with few of them having already suffered an economic crisis
Open economy (high level of International trade)
Lack of International competitiveness or a diversified economic base
Banks accounting for more than 60% of financial system
Banks also sold loans as Certificates of Participation, there was a scope to assign ratings to these
instruments like in the developed countries
1300 potential candidates for rating existed in the region (debt issuing entities)
Positive response from sample of market participants.
Many of the customers fell into the “wait and watch category”.

The market potential was optimistically assessed & it is very ambitious, as they envisaged huge potential as
it estimated to have 1300 potential candidate for rating and for CRISIL breakeven will be achieved only by
getting 100 to 200 clients for initial ratings.

3. Based on the information provided in the case, suggest a client acquisition plan for CariCRIS, to broadly
meet the original projections.

To broadly meet the original projections CariCRIS should target may target aggressively
on Non-banking financial firms, insurance firms, Mutual funds, Banks, corporates and
sovereigns in the order of priority.

o Early-bird launch for the detailed Credit Rating Reports & offer services at a discounted pricing to
attract deal flow
o Private Credit Assessments (PCAs) which lacked the depth of ratings reports but served as a rough
indicator to financial institutions to aid their investment decisions
 o Collaboratively Working with leading Business houses in each of these geographies who were
owning the largest banks, merchant banks and most of the institutional investors like PFs and MFs
& winning their confidence
o Dialogue and Engagement with the local regulators as they could be potential deal breakers.
o Identification of the Target Geographies through focused approach and ranking in terms of its
attractiveness of ratings market & focus on Trinidad and Tobago, closely followed by Jamaica, OECS
region, Bahamas and Barbados

Volume Targets
The below Volume targets are achievable
Entity / Year Y1 Y2 Y3 Y4
Sovereigns 1 2 3 3
Banks 1 2 3 4
Corporates 8 16 24 32
Mutual Funds 2 3 4 6
insurance firms 2 3 4 6
Non-bank Financial Firms 4 6 8 12
Total 18 32 46 63

Pricing
For achieving the projected revenue, the below pricing is suggested
Entity / Year Y1 Y2 Y3 Y4
Sovereigns 1834 25232 51646 50829
Banks 1834 25232 51646 67772
Corporates 14672 201858 413170 542177
Mutual Funds 3668 37848 68862 101658
insurance firms 3668 37848 68862 101658
Non-bank Financial Firms 7336 75697 137723 203316
4. What are the institutional and cultural hurdles/liabilities that CariCRIS faces as an international new
venture? How did Raghavan and the organization try to overcome these challenges? How successful
have they been

The market for Credit ratings were a relatively thin across the Caribbean as they are not acquainted with it as
60% of the financial systems in the Caribbean are accounted by the banks. Governments across the region
had run up high debt levels and fiscal deficits. This was prompted by reducing funding from multilateral
agencies and increasing borrowings. The feasibility study and the market participant survey conducted by
CRISIL, estimated around 1300 potential candidates for rating and they set-up the strategy to break-even in
fourth year of operation. They were expecting around 50-100 clients accept the rating in the initial year and
they set the pricing strategy accordingly which were above the standard.

It was Raghavan who could convince the shareholders about the pricing and eventually his strategy turned to
be right as it had to cover the higher expense structure at Caribbean.

Board had different opinions of joint venture and widely distributed shareholding and it ended up in
shareholding with distributing stakes to major regional banks and agencies. This shows how difficult it was to
structure the ownership. CRISIL had limited their shares to 9%. Another huge task was to raise capital as many
investors demanded detailed explanations. By hiring the help of CMMB to manage the initial capital
mobilization and registering the company Raghavan was able to tackle the situation very well
After setting up the company, Raghavan started to connect with the business leaders outside formal
settings in parties and events & was acquainted with the CEOs and CFOs of most firms and banks in most of
the Caribbean. Raghavan could also spread the importance of credit rating through various seminars and
closed group discussions. Raghavan started calling on potential clients, and also used the Caribbean Money
Market Brokers Ltd and other brokerages to identify firms seeking to issue bonds and commercial
paper. Further to gain regulators’ confidence, CariCRIS voluntarily offered to subject itself to inspection of
rating processes and criteria. CariCRIS could spread over 10 countries across the Caribbean as a result of
implementing all these strategies.

5. Assess Raghavan as a "Global Manager”. (be guided by the relevant Barlett and Ghoshal Article that is
included in your pack)

Raghavan was new to this role . He learned quickly & was effective during the period . As Global Manager
Raghavan have to hat multiple roles such as country manager , functional manager & country manager . He
need to be decision-maker, innovator & negotiator.

Raghavan played key role to raise initial capital & was able to convince investors. With his past experience
he was able blend with new Caribbean culture . He established policies for purchase, Travel, Payment
Authorization, leave etc. He got CariCRIS operational. Initially , he was under shadow of Ramperasad &
Banerjee. Later , he was able to come out and do it all alone. He hard pressed to impress on locals that
CariCRIS was a Caribbean firm and not an Indian Firm.

He quickly build a Team including Jason Kalicharan . As per the Local law , majority of staff should be local,
but they lacked expertise . He was able to get top notch expert from CRISIL to train the local team. He
closely worked with Board members.

He quickly learned marketing skills which initial he was lacking and able to improvise . As a global manager
Raghavan created a vision, generate new ideas to improve products or services, test new methods, and seize
opportunities to transform their vision into profits. He was able to make deals, negotiate contracts, manage
conflicts, and tackle problems. He was key in setting up the initial Pricing & build strategies to influence
regulators.

6. What strategies should CariCRIS adopt now to address its challenges?

Challenges Strategic Measures Evaluation

CRAs needed to be • Gathering comprising ✘Privately supported the idea but

accepted in bank- mostly local bankers denied to use ratings
dominated systems
• Bank personnel in board
members

• Personal meetings

Different CRAs have Introduced system to assign a rating ✘Many prospects favoured their
different rating bankers or investors
notations
 To create an image that Worked as an “Evangelist” ✔Delivered more than 100
CariCRIS is a Caribbean presentations in appealing to
firm ‘Caribbean’ identity, in first 2 years

To maintain Hunt experienced, capable and ✔7 members were appointed

transparency and independent professionals
protect reputation

Laws required majority • Competitive pay package to ✔Managed to hire sufficient staff
of the staff to be local attract motivated
candidates

• Local contacts and libraries

at CMMB, stock exchange
and local banks

Support of Regulation Subject itself to inspection of rating ✘Jamaica accredited CariCRIS but
was critical for success process and criteria no other countries

Franchise building Joint breakfast seminars with S&P ✔Signalled a partnership that
enhanced CariCRIS reputation

Pricing $10,000 to $200,000 ✘Prospective clients seemed

these rates high

Investors and bankers • Repeated interventions ✔Got four of the largest investors
not using ratings in T&T
• Issued a joint communiqué

Strategy for Geographic coverage & product mix

• First target medium to big firm & banks
• Profile building & visible to shareholder
• Private Credit assessment strategy
• Generate a traction towards ratings

Strategy on Pricing & regulations

• Calculate min. & max. charge range
• Focus on Client value & price association
• Strategy for influencing regulations with combined effort with the local bodies