Ged Carroll

Category: economics | 經濟學 | 경제학 | 経済

Economics or the dismal science was something I felt that I needed to include as it provides the context for business and consumption.

Prior to the 20th century, economics was the pursuit of gentleman scholars. The foundation of it is considered to be Adam Smith when he published is work An Inquiry into the Nature and Causes of the Wealth of Nations. Smith outlined one of the core tenets of classical economics: each individual is driven by self-interest and can exert only a negligible influence on prices. And it was the start of assumptions that economists model around that don’t mirror real life all the time.

What really is a rational decision maker? Do consumers always make rational decisions? Do they make decisions that maximise their economic benefit?

The problem is that they might do actions that are rational to them:

  • Reducing choice when they are overwhelmed
  • Looking for a little luxury to comfort them over time. Which was the sales of Cadbury chocolate and Revlon lipstick were known to rise in a recession
  • Luxury goods in general make little sense from a ration decision point of view until you realise the value of what they signal
  • Having a smartphone yet buying watches. Japanese consumers were known to still buy watches to show that they care about the time to employers when they could easily check their smartphone screen

All of which makes the subject area of high interest to me as a marketer. It also explains the amount of focus now being done by economists on the behavioural aspect of things.

  • Bullwhip effect aka Forrester effect

    Bullwhip effect

    I came across the bullwhip effect as a descriptor recently in discussions around the global chip shortage. Bullwhip effect is a concept that is well known in supply chain circles.

    The bullwhip effect is also known as the Forrester effect. Disruption ripples back from the retailer, through the wholesaler, manufacturer, on to their suppliers and so on.

    The usual causes for the effect are:

    • Demand forecast updating – this might be where a company might want to change their product mix to match consumer demand, if a product is very successful or grossly underperforms
    • Order batching – where members of the supply chain round up, or round down the quantity of orders. This happens with the periodic memory gluts or shortages affecting the technology sector
    • Price fluctuations – price discounts can encourage non-linear increases in purchases as it becomes worthwhile for customers to stock up, hedging against increased prices down the line. Oil reserves would be a classic example of this phenomenon
    • Rationing and gaming – buyers and sellers delivering over or under their order quantities. An example of this would be the actions of Enron in US electricity markets. This could be used in a positive way to promote changing the supply chain like renewable sources of electricity generation
    My, what a big holster you have.

    What caused the global chip shortage that is driving the bullwhip effect?

    There were three causes to the global chip shortage

    1. Partial shutdown – The semiconductor industry went through a partial shutdown because of the COVID-19 epidemic. This meant that there was a smaller supply of chips.
    2. Unusual increase in demand – Home working drove an increase in demand: increased sales in PCs, wi-fi routers, external hard drives, mice, keyboards, printers and so on. There was also a corresponding increase in home entertainment as consumers upgraded smart TVs, Apple and Roku set top boxes. This all coincided with the launch of the next generation of gaming consoles by Sony and Microsoft – which can usually drive a squeeze on their own
    3. Supply chain disruption – A fire in Japan at Renesas Electronics. A trade war affecting Chinese semiconductor manufacturers. Freezing winter weather in Texas disrupting employees and their businesses. Now there is a drought in Taiwan affecting TSMC – the world’s largest semiconductor foundries

    More related posts here.

    More information

    Chip shortage is starting to have major real-world consequences 

    Global chip shortage: everything you need to know | CAR Magazine

    The global semiconductor shortage can be explained by the bullwhip effect 

    Chip industry pressures spur Renesas to diversify | Financial Times

    Taiwan’s chip industry under threat as drought turns critical | Financial Times

    Texas winter storm blackouts hit chip production | Financial Times

  • Standard Chartered + more news

    Standard Chartered

    Standard Chartered to cut branch network in half – Standard Chartered is to reduce its global branch network by half to around 400 to cut long-term costs after the UK bank reported a stronger than expected first quarter profit. The Asia, Africa and Middle East-focused lender, which had as many as 1,200 branches worldwide in 2014, said today it will shrink the network to a third of that total as it also gives up office space worldwide – this move by Standard Chartered seems to be a short term move to try and please investors

    Temple of Mamon

    Consumer behaviour

    Sex sells: China farm region becomes ‘lingerie capital’ | Hong Kong Free Press HKFP – around 2013, volumes soared as younger Chinese consumers began discovering their sensuality, Lei said. Most buyers are now between 22 and 25. Initially, loose-fitting, not-too-revealing designs were favoured in China. Today, semi-transparent, “body-hugging” numbers dominate

    Why are South Korea’s young men turning against Moon Jae-in and his ruling party? | South China Morning Post – Unpopular housing policies and a backlash against Moon’s perceived ‘feminist’ agenda has seen support for his Democratic Party administration collapse among Korean men in their 20s and 30s. Not so among young women, however – meaning victory for the opposition is far from guaranteed at the next presidential elections set for March 2022

    As boundaries between work and home vanish, employees need a ‘right to disconnect’

    Glancing at your phone quickly prompts other people to do the same | New Scientist – Such a rapid, automatic response is probably due to people mimicking each other without realising it – what scientists call the “chameleon effect”. While such mimicry is thought to have evolved in human societies to help people bond with each other, mimicking mobile phone use might have the opposite effect, says Elisabetta Palagi at the University of Pisa, Italy. “We have a need to follow the norms imposed on us by people around us, to [match] our actions with theirs in this automatic way,” she says. “But smartphones can increase social isolation through interference and disruption with real-life, ongoing activities.” – digital yawning

    Economics

    The panopticon of Germany’s foreign trade: New facts on the first globalisation, 1880–1913 | VOX, CEPR Policy Portal – The history of globalisation is usually told in two parts, separated not only by two world wars but also by changes in technology, institutions, and economic logic. This column reconsiders that narrative. Using detailed new evidence on Germany’s foreign trading practices from 1800 to 1913 (the ‘first’ globalisation), it finds that most growth took place along the extensive margin, while 25–30% of trade was intra-industry. If the first globalisation saw substantial heterogeneity within countries and industries, it may be time to re-think the ‘classical’ versus ‘new’ trade paradigm

    Ethics

    Mediatel: Mediatel News: An ill-advised alliance & cross-media measurement pinch-points – Bob Wootton on the moral bankruptcy of P&G circumventing audience privacy measures on Apple devices in China

    Finance

    E-Residency joins campaign against IBAN discrimination | Estonia E-Residency Blog

    Media

    WordPress Saves Creative Commons Search Engine From Shutting Down 

    Pandemic propels Thai mom with ‘nothing to lose’ into internet pornstar | Coconuts Bangkok – And when the internet sees a woman posting sexy nudes, it usually assumes she does porn. At first Fernie hated those insinuations. She felt insulted and would block anyone called her a “porn star.” But it eventually wore her down and, in the way of internet grooming, became a kind of self-fulfilling prophecy as the messages kept pouring in. “When I got them that frequently, I started to think of them as compliments,” she said with a giggle. “Then the thought of, ‘If I sell nude pics, I might as well sell porn,’ came to my mind, because they’re similar anyway.” More content related to adult entertainment here.

    Security

    Havana syndrome: NSA officer’s case hints at microwave attacks since 90s | Espionage | The Guardian

    China’s regulator names 33 apps including Baidu, Sogou, iFlytek, Tencent for unauthorised data collection | South China Morning Post – Thirty three apps from Tencent, Baidu, Sougou and more are among the latest to receive scrutiny over user data. App makers will have to comply with new privacy regulations banning collection of data and forcing user consent

    April 30, 2021 – Letters from an American – really interesting post on information warfare and the way the US body politic is looking at it

    Taiwan bans recruitment for jobs in China to combat brain drain – Nikkei Asia 

    Technology

    Toyota will showcase its hydrogen-powered Corolla at Super Taikyu event – Toyota is definitely thinking about a hydrogen future due to the limitations of lithium ion battery cars. Motorsport is where a lot of research and development happens for car and commercial vehicle manufacturers

    Why has TSMC’s Nanjing expansion plan stirred up a hornets’ nest in Beijing and Taipei? | South China Morning Post – TSMC says expansion will help it address chip shortage, particularly for automotive sector. One analyst says move could stifle domestic chip development on the mainland

    Baidu will offer first paid robotaxi service in China next month, letting people hail rides without drivers

  • Conglomerate discount

    Conglomerate discount wasn’t a concept that I was that familiar with. Conglomerates had gone out of style in the west during the 1960s to the 1990s.

    Western conglomerates

    Classic conglomerate examples would be

    • GEC
    • ITT
    • Litton Industries
    • Lonhro
    • Teledyne
    • Textron

    Spivs and financiers bought in and broke them up into their constituent parts. Or a new CEO would do it themselves to focus on core competencies and release value for shareholders.

    Conglomerate discount

    A conglomerate discount is when the stock market values a diversified group of businesses and assets at less than the sum of its parts. This is because investors are worried about the management not being able to focus on improving the operational performance and figuring out a coherent strategic direction.

    Michael Milken moderating the panel on Investing African Prosperity - Los Angeles, 1 May 2013
    Michael Milken who was famous for financing leveraged buyout deals

    Taking advantage of a conglomerate discount

    So our spiv financier could borrow money, buy the company at a discount. Sell off parts to pay off the loan and be left with more money than they initially had to borrow. Many of the constituent companies couldn’t be sold quickly as a going concern. Instead they were shut, machines sold for scrap and their factory land sold for redevelopment.

    Asian conglomerates

    Asian business people, especially those running Hong Kong and Chinese companies don’t view conglomerates in quite the same way.

    Li Ka Shing 李嘉诚
    Li Ka shing

    The Li family manage two publicly listed companies in Hong Kong. They came out of the merger of Cheung Kong Holdings and Hutchison Whampoa.

    Cheung Kong

    Cheung Kong Industries was formed in the 1950s as a plastic flower manufacturer during the post-war industrialisation of Hong Kong. It evolved into a property investment company after the 1967 riots and Cheung Kong Holdings was established in 1971. Over the next decades it became one of Hong Kong’s largest developers and land owners.

    In 2015, the group went under a reorganisation, the groups property assets were spun off into what is now CK Asset Holdings.

    Hutchison Whampoa

    Hutchison Whampoa was bought in 1979. HSBC had a strategic holding in the company and sold that on to Cheung Kong. They also provided Cheung Kong with the loan to make the purchase. In 2015, Cheung Kong bought the parts of Hutchison Whampoa that it didn’t already own. It eventually became CK Hutchison Holdings, incorporating all the non-property aspects of the Cheung Kong – Hutchison Whampoa combine.

    In addition, the Li family have some of the shares in businesses that they own held in the Li Ka shing Foundation (LKSF).

    CK Hutchison and CK Asset Holdings

    CK Hutchison Holdings and CK Asset Holdings both trade at a conglomerate discount. However, the Li family has a controlling share in them. This probably explains why they haven’t come under attack by an activist shareholder from within China or abroad.

    In his article for Apple Daily Yeung Wai-hong explains how the Li family uses the concept of conglomerate discount to their advantage.

    The CK Hutchison Holdings and CK Asset Holdings creation allowed shareholders to see clearly delineated businesses. One focused on property, the other one on non-property assets in 2015.

    CK Asset Holdings started to blur the lines buying into businesses that more sensibly fit into CK Hutchison Holdings – aircraft leasing, pubs and utilities. Creating conditions for a conglomerate discount that is disadvantageous to non-family shareholders. The bigger business has a larger turnover. Even if the profit margin is lower, management still have an excuse to raise their salary and benefits.

    CK Asset Holdings has a large amount of cash on hand indicating a lack of investment opportunities. Recently CK Asset Holdings bought shares in utilities from LKSF in exchange for shares in CK Asset Holdings.

    I’ll let Yeung Wai-hong explain the next bit

    …CK Asset promised to buy back shares equivalent to the amount of HK$17 billion and cancel them. Whether the equity will be diluted is up to the minority shareholders. If they do not accept buyback, their equity will be diluted; if they do, then it won’t. The buyback price is about 10% more than the average share price of CK Asset, so the minority shareholders do have a chance to cash in at a “high price.” However, the buyback price of HK$51 per share is only 53% of the net asset value after deducting the debt. So accepting the buyback is like allowing Li’s family to grab a bargain at half price.

    Conglomerate discount by Yeung Wai-hong, Apple Daily Hong Kong (March 29, 2021)

    If that happened outside Hong Kong there would be shareholder class action suits. The theory goes that these trades slowly put the squeeze on minority shareholders at a discount. Transferring value to the Li family. Eventually allowing for a gradual privatisation of the business at the expense of retail shareholders.

    Once this has been done the value of the assets at their full price can be realised. More finance related content here.

    More information

    ‘Conglomerate discount’ | Yeung Wai-hong ｜ Apple Daily 

    Britannica, T. Editors of Encyclopaedia. “Conglomerate.” Encyclopedia Britannica, September 26, 2007.

  • Lee Dunne + more things

    Lee Dunne

    How Lee Dunne challenged the depiction of working-class mothers | RTÉ – I originally didn’t know Lee Dunne as a novelist. Instead he was part of my childhood. Lunchtime listening when I wasn’t at school was Harbour Hotel, a radio soap opera written by Lee Dunne that gave a good sense of everyday life. The graininess of listening to the show on medium wave added to the experience. Dunne wrote each episode a bit like Roshomon, with each character talking about an event (like an argument) from their perspective. RTÉ’s obituary also focuses on Dunne’s social commentary literature that was banned by the Irish government in the 1960s through to the mid-1970s. Lee Dunne like James Plunkett wrote about the everyman. Plunkett’s work differed from Lee Dunne in that it had more of a socialist tenor to the content. Lee Dunne had particular success with his 1969 novel Goodbye To The Hill, more Ireland related content here.

    Beauty

    Shu Uemura to Exit Korean Market | BoF – Shu Uemura, a Japanese beauty brand owned by L’Oréal, is exiting the South Korean market in September after 16 years. While some speculate this is due to Korean consumer boycotts of Japanese products that began in 2019, L’Oréal states the withdrawal is part of a strategy to optimise its brand portfolio and respond to local market demand. Another contributing factor is likely the intense competition within the Korean beauty market. Shu Uemura currently operates over 70 outlets in the country.

    Five China market strategies that domestic brands do better than foreign brands | Daxue Consulting – I would add western brands rather than all foreign brands

    Consumer behaviour

    NewNew™ on the App Store – god this dark. In th sage words of Matt Muir – how else do you describe a new app, with significant VC funding, whose main purpose seems to be to allow ‘creators’ (we’ll come back to that word) to earn money from their ‘fans’ in exchange for letting said ‘fans’ determine the course of their life, in some sort of modern, ersatz version of The Diceman?

    How China’s online hate campaigns work – Protocol — The people, power and politics of tech – In today’s China, a nationalist campaign involves something far more complex than paying people to post scripted messages parroting Beijing’s line. The government has mastered the craft of influencing people’s genuine emotions and having these ordinary users do the trolling and doxxing — for free. Oftentimes, this means appealing to misogyny or chauvinism, something that virtually guarantees more clicks. Many videos and articles attacking Xu have tried to paint her personal life as promiscuous and delinquent. Web users have frequently called Xu a “female Han traitor,” a dog whistle that conflates concepts of chastity and national loyalty

    Europe

    Why Can’t Europe Cope With the Coronavirus? – Carnegie Europe – Carnegie Endowment for International Peace – EU states are too integrated to manage the crisis separately and not integrated enough to do so collectively, an inability to make rapid decisions, and a breakdown of trust between governments and the governed

    Ethics

    P&G reportedly testing Chinese workaround to Apple’s privacy changes | Marketing Dive – I find it hard to believe. if they’re seriously considering this, P&G have their head up their ass on ethics. They don’t need to do highly targeted marketing because Byron Sharp. This just looks like a waste of money

    Finance

    How China structures loans to become Africa’s “preferred” lender — Quartz Africa – Chinese contracts contain broad confidentiality clauses that stop borrowers from sharing details about the contracts, or sometimes even the fact that they exist. And with a confidentiality clause in every contract in the dataset since 2014, the contracts had become more secretive over time. Most of the clauses commit the borrowing countries not to disclose any of the contract terms or related information, unless required by law.

    Hong Kong

    The Rise and Decline of Hong Kong – From the British Colonial Era to the Chinese Communist Takeover | The Greater China Journal 

    Hong Kong’s electoral changes: the Communist Party is taking over | Hong Kong Free Press HKFP – good summary of the different structures and challenges in the new Hong Kong ‘electoral’ system

    Hong Kong’s elites should think about an exit strategy – Nikkei Asia – The most serious concern for Hong Kong’s elites is the impact on their interests if China’s economic integration plan is fully implemented. Hong Kong’s tycoons may see this plan as a great opportunity and believe that their connections on the mainland will help them. But they may be in for a rude shock. Beijing wants to integrate Hong Kong’s economy not to enrich its tycoons, but to make the city’s economic future even more dependent on the motherland. In this process, Beijing would understandably give preference to mainland players, in particular state-owned enterprises, at the expense of Hong Kong’s businesses. – this covers all the reasons why I think Jardine’s pivot to Indonesia is smarter than Swire doubling down on mainland China

    Ideas

    Zhang Baijia: Reflections on China’s Research on Frontiers and Relations with Neighboring States | 高大伟 David Cowhig’s Translation Blog – Hard intelligence is specific information; soft intelligence is the understanding that makes possible the interpretation of hard intelligence. I found this differentiation fascinating delineating information and knowledge

    Information security

    Israel Reportedly Behind Cyberattack That Caused Blackout at Iran Nuclear Facility – reminds me of the Tehran show on Apple+ about Israeli spec ops and hackers in Iran

    Apple Mail Zero-Click Security Vulnerability Allows Email Snooping | Threatpost 

    Media

    Cannabis streaming service sets debut date, program slate – The Third M – MM+M – Medical Marketing and Media – High Times meets NBC. What’s next Crypto News Network for the bitcoin and NFT fans?

    Retailing

    The great British retail reopening | Vogue Business – The 12 April reopening of all physical stores in the UK is an occasion for optimism, but it’s heavily laced with caution. “The big question is how much of the massive increase in total share of spend will online retain?” says Richard Hyman, veteran UK retail analyst. His rough estimate, he says, is about 85 per cent. “If online hangs on to a material portion of spend, then the cost of selling something in a shop will have gone up significantly.”

    Covid’s effect on Rodeo Dr, Oxford St, and Russell St retail closures — Quartz – worthwhile looking at for its retail information and its beautiful interactive design

    Technology

    Job search | Amazon.jobs – interesting job ads. Amazon is looking for a lot of product designers and software engineers to work on visual search and augmented reality as part of the ‘next generation of shopping innovation’ – I found this via the ex-Yahoo! employees groups on LinkedIn. Yahoo! had a large contingent of people working in areas such as image and video search that would be of interest to Amazon now. The team is based just down the road from Sunnyvale in Palo Alto

  • The split economy

    Split economy

    The split economy is used a term differentiate from the sharing economy. I first heard of it on the Robin Hood Snacks Daily podcast. The sharing economy has been discussed ad infinitum and is very popular. It encompasses high growth businesses like AirBnB, Uber and DoorDash.

    The split economy is used to differentiate itself from the sharing economy. They have some elements in common. Like the sharing economy, the split economy focuses on maximising the utilisation of assets. The difference is that the consumer isn’t paying for a just a service, but also fractional ownership of an underlying asset.

    An example would be fractional ownership of sports cars via ‘clubs’ :

    • Curvy Road
    • AutoXotica
    • Exotic Car Share

    Fractional ownership of art:

    • Feral Horses
    • Masterworks
    • ArtSquare.io

    None of these are necessarily ‘new’ business ideas, but they are now starting to get heat behind them.

    Pacaso

    Snacks Daily discusses a company called Pacaso. Pacaso buys high end properties and then divides it up into fractional ownership. They then charge a management fee to configure the home with personal pictures, a full fridge, fresh laundry and extensively cleaned. Its a sophisticated boutique experience, that is cheaper than full ownership, but with all the practical benefits.

    Pacaso

    Back in the day, Pacaso would have been described as a timeshare business. However the reputation of timeshares has been tainted by high pressure selling and criminality. Split ownership allows Pacaso to put distance between the timeshare sector and itself. It allows the business to ride the coat tails of valuations enjoyed by sharing economy companies.

    More similar posts here.