Friday, 10 January 2014

Spending to save the world

In the business world today, marketing is increasingly tapping into the consumer psyche of the masses. The corporate social responsibility of big businesses today arguably takes more from society than what they give to it.

Companies are expected to do more than just sell a mere product in the business world today. Probably the best known subject for example is Toms, a for-profit company with a social cause that has mass public appeal. The company employs a “1 for 1” concept where the company delivers a free pair of shoes to someone in need in an impoverished country through NGOs for every pair bought as a product in its home country. Depending heavily on corporate social responsibility, Toms has made a success out of this business model better known as the B1G1 model (Buy1Give1 model).

The B1G1 model has tapped into the psyche of consumers who feel more altruistic with their shopping decisions. While they put on their brand new shoes, they know that a similar pair of shoes will be given to someone who is in need, however this model raises some of dynamic questions:

Is this really a long term solution?
Donations can be of use in times of disasters or when the apparatus of markets don’t function anymore. However, a means of supporting communities through donations is a major source of deadweight loss. In small economies, donated shoes can and will put local shoemakers out of business.

Is the B1G1 model sustainable?
B1G1 models are marketing themselves as the pioneers of supporting causes for the lesser privileged thus making them subject to the market activity of some remote and otherwise disconnected society. If the consumers are no longer in purchasing products made by B1G1 companies, the potential recipient of the free product gets hurt.

This sort of altruism that can be purchased at the sales terminal seems to only keep the underprivileged alive and does not better their overall condition.

Another company that maintains similar practice is the Seattle based coffee giant Starbucks.

A trip to one of their franchises is designed to make the customer feel warmer about their consumer habits. The price the customers pay isn’t just for a cup of coffee but it also includes what they’re buying into – coffee ethics. The intangible surplus of the coffee is the consumer’s satisfaction that they buy “coffees that are Fair Trade Certified. By doing this, they ensure that farmers receive a fair price for their hard work”. The idea that consumers can buy their redemption at a higher price is a vicious circle which packages altruism in consumption.

Acquired by Starbucks in 2005 for $8 million, Ethos Water came with a mission of “helping children get clean water.” With a price range of $1.80 to $2.00 in Canada, it stands to be one of the more overpriced bottle of water in the market today. For every bottle sold, 10 cents (5 cents in the US) are put in their Ethos Water Fund which, to date, has $7.4 million in its reserve.  Despite the donations at their end, the price of the water bottle, $1.70 to $1.90, still remains highest amongst its competitors. Such marketing practices have been likened to profiteering. A fund of $7.4 million represents only 0.37% of their total operating income in 2012. Something quite obvious just doesn’t seem to add up here.

What is intriguing is that massive advertisement costs are incurred to keep the consumer satisfied with the belief that the coffee that they have bought ‘into’ has served a higher purpose than just having provided them a caffeine fix.

Friday, 20 December 2013

Buddhist elements in today's western capitalism

Capitalism, today, has become a form of chaos that functions. To fully engage and to try being in control in this market will make one go crazy. The ultimate meaninglessness of this phenomenon is felt in times of economic depressions where a sight of managers jumping out of their office buildings is no rarity. Bubble and bursts aside, even a rumour in the market can lead to its stability on fragile grounds.

A fairly new remedy practiced by western CEOs to counter these occurrences and even push this economic system is by borrowing the methods of the East - Buddhism. Buddhists stress the importance of tuning out the worldly chaos and to meditate. Managers are using this method to participate in the frenzy of markets without fully engaging themselves into it. They say that sort of 'inner distancing' of the self allows them to speculate all day and keeping their calm throughout. This is known as mindfulness.

The notion of ‘mindfulness at work’ is a new one. A search on reveals that most books published on this matter are done so in the current decade. What is striking that this is a being a made a business of. Book are published as well as lectures and seminars are also conducted at prestigious universities.

Harvard Business School professor William George has collaborated with Buddhist meditation master Yongey Mingyur Rinpoche for a conference on mindful leadership. This aims to introduce core Buddhist concepts into Western leadership ideas to develop strong business leaders in today's world. Google even has courses for its employees called "search inside yourself" which teaches emotional intelligence through meditation.

Steve Jobs, co-founder of Apple Inc. was a practitioner of Zen Buddhism. Steve Wynn, CEO of Wynn Resorts and the 227th richest man in the world, is also practicing Buddhist. Top performing Western companies such as Deutsche Bank, Nike, Apple, Yahoo, and Google all have a 'quiet room' where employees are encouraged to take time out from the stressful environment and switch off for a bit.

What is interesting here is the switch of attitudes between the East and the West. Eastern financial hubs are having a greater say in today’s capitalism whereas western countries are swiftly adapting eastern methods to cope with the stress and unpredictability of it. This merger of spirituality/religion into the business world is surely going to a dawn an altered method of business. The 2008 financial meltdown has indeed required new ways to cope with the uncertainty. But the active implementation of this coping mechanism signals that is more volatility to come and we better be prepared for it.

Friday, 13 December 2013

China's housing market - the big bubble.

Liu Li-Gang, ranked as China's number 1 economist has called it a bubble. So has Wang Shi, the Chairman of the largest residential property firm, China Vanke. Yet the hopeful bullish seem to think that China's housing prices can increase without faltering. As multitude of rural dwellers emigrate to the cities, the largest urbanisation in history has created a conspicuous demand for housing in the urban centres of the country. To keep pace with the hordes moving in, there is a colossal increase in housing projects across major Chinese cities.

In September 2013, housing prices in Beijing jumped by 18 percent compared to the same period in 2012 according to data provided by the National Bureau of Statistics. In Shanghai, the rate was 14 percent. An overview of this would give an optimistic picture… and why shouldn't it? At this rate, the housing prices may go even higher. Despite the promising figures, industry players are already calling this insatiable growth a bubble.

On the flipside, however, it seems that entire neighbourhoods and portions of cities has houses and apartment blocks proliferating but only in vain. The phenomena of "ghost towns" has now become prevalent in China. Traditionally, ghost towns are former settlements which are no longer in use now, for example, communities surrounding Soviet coal mining towns which are now completely abandoned. Mind boggling as it may be, there are "cities" in China built to accommodate millions only to find a handful of people living there. The names Ordos, Tianducheng, and Thames Town in Songjian District come to mind.

This excess of capacity, also known as overinvestment, is taking the shape of a bubble - albeit a controllable one, labelled by Wang Jianlin. The Chairman of Dalian Wanda Group announced at the World Economic Forum in Davos 2013, that the group will not rule out on acquiring hotel management firms so as to diversify investments out of Mainland China. By 2020, it hopes to have a $100 billion revenue with 20% of income coming from overseas markets.

After investing in other countries in the Southeast Asia and the US, China Vanke also wants a fifth of its revenues from overseas as well.

In similar vision, R&F Properties, Guangzhou’s one of the largest real estate companies has made plans for its first acquisitions abroad in Malaysia. Its plans are to build residential as well as commercial properties there for $1.4 billion. The Chairman commented “R&F has been exploring opportunities to tap into fast-developing markets overseas to boost its longer-term profitability.”

Chinese magnates are securing long measures by taking early measure. The questions remains - when will the bubble burst? Liu Li-Gang claims that China is facing an increasing risk of a property bubble. “But certainly within the next ten years, we're going to see another real estate bubble burst,” the former head of Bank of Boston said at a panel discussion about investment in China and the US. Few even argue this process has already started.

What is for sure now is that housing prices will keep on increasing for the time being, as the trend of investing in housing, in China, is prevalent over other forms of stowing money away safely.

Saturday, 7 December 2013

Bitcoins are a serious matter now

The data on is updated between 30 seconds to every minute. At this very moment (21.36 7/12/2013), the Chinese Yuan accounts for 42.2% of the global Bitcoin trades while the US dollar is 52.4%. The smaller trades include the Euro, British Pounds, and Canadian Dollars at 3.0%, 0.4% each respectively.

On 5 December, the Chinese government barred banks from trading in the digital currency, in what is said to be a first step in regulating Bitcoin. As a result, Chinese Bitcoin exchanges saw the currency drop in value. It is also worthy mentioning that Baidu, China's largest web services company, stopped accepting the digital currency after this announcement. To understand the impact of Bitcoins, the surge in value is clearly observed by looking at the data. On 6 November, it was trading for 1,621 Yuan. Today, one month later, the value has soared by 256% to 5,766 Yuan even though the latter figure is after a 20% drop after the announcement.

A quick conversion suggests that in the last 24 hours, 1.1bn Yuan and 219m dollars have been converted into the digital currency, one which has no trail of transactions after the conversion.

Representatives of the People's Bank of China have indicated that Bitcoins renders money laundering effortless for illegal operations simply because there is no regulation over the currency. Analysts have indicated that the government will be left with no choice but to take Bitcoins more seriously if the share of transactions in the currency increase. They do point out that the value of Bitcoins in circulation in relation to other currencies is tiny and that it is not likely to have much impact on the economy in general.

Does China's action mean danger for the pseudo-currency? "As Bitcoin transactions can be done anonymously and are not restricted by location, it's difficult to monitor capital flows and it therefore facilitates money laundering and financing for terrorist activities," the People's Bank of China stated. Fact is, the Chinese government hasn't outlawed the bitcoins but rather they have placed it under tighter control so as to regulate it as it asserts that ordinary investors are subject to high level of risk in this volatile currency.

Even though this open source, decentralised pseudo-currency may be put under regulation and control, can the Bitcoin really be flattened out to stability and thus, cleansed of the excess risk it carries?