Timing adjusted first mover advantages

We know the heights of 'first-mover advantage' in any arena of this universe. Innovating something through intellectual called intellectual property or using something already existing in another part of geography helps entrepreneur to reap firs mover advantages in terms of recognition, good brand building or huge untapped revenues. By the time competitors copy the idea and moves into the same space, first mover has already reaped the fruits of what he has sown by entering first.

Despite of having good idea or good IP based product or service or any other measure to make money out of market participants, success of first mover also depends on the timing of entry. Timing has so much to do with the potential benefits and gains associated with the new offering, along with the level of application of that offering.

Timing means, analyzing the market environment, industries' status, government policies and regulations, global events and risk appetite of consumers or investors. If timing can't be taken care of, then the above mentioned first mover advantages will be lost in no time and brings failure at huge cost and losses.

The similar scenario happened with Standard Chartered Bank which currently issued Indian Depository Receipts (IDR) in Indian market to raise funds from investors. IDR is nothing but the financial instrument in the form of depository receipt created by Indian depository in India against the underlying equity shares of the issuing company. In an IDR, foreign companies would issue shares, to an Indian Depository (say National Security Depository Limited – NSDL), which would in turn issue depository receipts to investors in India. The actual shares underlying the IDRs would be held by an Overseas Custodian, which shall authorise the Indian Depository to issue the IDRs.

Standard Chartered entered India by issuing IDR to raise money and increasing its brand presence and better penetration into the Indian markets as compared to its counterparts. Standard Chartered wants to gain all the first mover advantage as its the first who issued IDRs in Indian market. 10 IDRs constituted 1 share of Standard Chartered which were in the price band of Rs. 100 - Rs. 115 based on its share prices on NYSE.

It incurred huge costs in launching of this issue which involves large chunk of expenditure on advertisements (print & media), registration fees, underwriter fees and other such expenses. Despite of such a big hole in his pockets, it didn't reaped the benefits to that level which it expected while entering.

Though, few reasons are attributed to the product structure but major reason behind not so successful IDR issue, is the bad timing. In its IDR issue, they mandated that qualified institutional buyers (QIBs) have to pay upfront 100% of the subscription fees, and not like other issues where they can make part payment. Because of this reason, it didn't received such success as it expected to be, because the above clause, it saw least participation from institutional investors.

If we look at the retail side, individual investors are the most threatened species on Earth since a smallest tremor in the market causes them to sit back. The timing is bad in the sense that, European crisis is on rise by adding every day a new country in the list of debt ridden economies and thereby extending the so called abbreviation of the century i.e., PIIGGS meaning Portugal, Italy, Ireland, Greece, Great Britain & Spain.

Another bad timing effects are tightening of monetary policy by RBI which confuses investors in analyzing the likely future scenario, then major oil spills due to natural and other reasons which raises oil prices along with the bad environmental effects.

Above mentioned domestic and world events left investors in confused state of mind in analyzing the potential benefits by applying for StanChart's IDRs and the only thing they elevated in their analysis is risk component which is absolutely there.

Despite of bad timings and product rigidity, institutional investors helped Standard Chartered in sailing out its IDR issue through turbulent conditions and received 2.4% more subscription then the issued IDRs at a price of Rs. 104. These IDRs are expected to be listed by June 11, with the allotment of new shares by June 7. Standard Chartered through this IDR issue raised Rs. 2,490 Crore ($530 million).

The only awaited time after such tough sailing through, is the success of its shares on the national bourses. Whether they will prove to be helpful for investors in price appreciation and giving them capital gains? Will it give the potential returns to the investors who will be allotted shares? Will it give the intended first mover advantages for which Standard Chartered walked towards its first move? This is the beginning of new story in Indian capital market and now its time to wait and watch the level with which Standard Chartered will be benefited and to see who will be next in the queue for the same.