Andrew Choi's Blog

As I write  a concluding post about my COMM 101 experience, I find it appropriate to mention the one theme that shaped my perception of the course: Edward Freeman’s Stakeholder Theory. One afternoon, when a friend of mine asked me what the point of this course was, I asked myself the same question. Why were we presented with a business toolkit throughout the entire course? Today, I concluded that Sauder’s goal for me is to train me to use business for the benefit for the people. As my instructor Scott mentioned to us many weeks ago, “Business is about people”. Without people, how can we actually find purpose to do business? That’s why Stakeholder Theory appeals to me so much, because it revealed to me how businesses can and should meet the needs of every stakeholder.

Anyways, turning to the article at hand, anyone reading about the Heathrow-Gatwick Runway issue – whether or not new runways need to be built in metro London’s two airports – will be aware that the issue of satisfying all stakeholders is prevalent here. How do we satisfy airport authorities, companies operating through Britain, the British economy, international travelers, locals living near the airports, the surrounding natural environment, and – let’s never forget – the politicians executing the decision?

Photo from PA Images

The dilemma is difficult: expand in Heathrow and suffer noise pollution and a lack of easy travel access, or do we focus in Gatwick, but miss out on booming distant global markets like China and the European tourism industry? In my opinion, the verdict falls on whether the long-term gains of either option outweigh the estimated costs of construction. By those parameters, expanding Heathrow would be the more suitable choice. If both runways are constructed and used at the same time, the Heathrow runway will still be more useful after the few years of required construction. The increased demand for tourism and distant Asian markets asks for the logistic capacity to accommodate direct flights. While this may come at the expense of UK denizens, the expansion will also allow locals to access more direct flights, more business opportunities, and more goods that can be cheaply bought through e-commerce from distant manufacturers like China. Thus, in a scenario where unexpected costs require tough choices, the Gatwick runway should wait while Britain adapts to a rapidly changing global economy.

Iris Gu’s post on Alibaba‘s immensely successful sale day in China grabbed my interest. I haven’t considered the realm of e-commerce in my blog yet, and my interest in the subject piqued after friends at a debate tournament bragged about buying clothing at ridiculously low prices from Alibaba.

Alibaba’s “Single’s Day” campaign sounds quite familiar, bringing to mind the hurricane of consumerism during the USA’s Black Friday and Boxing Day.  The move seems logical; taking advantage of a rapidly growing middle-class market in China (growing annually by 25%!!!) is nothing more than common sense. It’s no wonder businessmen everywhere are learning Chinese. In China, political movements towards freer markets and consumerism are taking momentum. It’s only a matter of time before the world’s largest pool of consumers opens its gates for every hungry firm in the world (“27,000 global brands” – hooray for PEST analyses).

A diagram showing the difference in volume of the Chinese and American markets. Graphic by iResearch.

But while we can adore Alibaba’s impressive $9.3 billion in sales, the statistic that sets off alarms in my mind is the terrifying “278 million orders”. 278 million?! That’s over two-thirds of the population of the US (which is about 319 million)! While we stand with open jaws at these stats, one must raise an important point. The “Single’s Day” in China differs from Black Friday and Boxing Day in one critical area: it’s far, FAR greater in size. While markets in the US can form Industrial Concentration Ratios of greater than 50% with ease, the difficult geography and immense population of China will make logistics and market capitalization a pie too massive for any firm to swallow. The idea of a single e-commerce firm meeting the need of something the size of 3 Germany’s beckons immense logistical problems ahead. With the market in China growing far more quickly than any individual firm, it will be interesting to see what competition in a free capitalist market in China will look like, alongside how delivery firms like UPS will adapt to this tremendous opportunity. How will technology, regulations, culture, and economics shape the appearance of a mature Chinese market?

” If  the United Nations was fully funded, why would we need the Arc or social enterprise?”

The question is a fair one. It reminds us that although well-intentioned entrepreneurs are sprouting everywhere in the world, one can’t forget that the United Nations exists as well. So, if we already have a globally recognized institution with limitless resources supervising the world, why are social entrepreneurs still relevant?

The first thing I’ll say is that, well, the UN isn’t helping that much. Don’t get me wrong, the UN is a critical institution where nations convene together to solve pressing issues, like civil wars and human rights abuses. But the UN alone is too large and bureaucratic of an organization to fix the problems in our world today. I know this quite well because I’ve been an avid Model UN competitor for years and I study international relations passionately. I learned that diplomats and politicians are far too removed from the pains of normal society to tackle specific issues directly, mostly because their knowledge of any particular issue is fairly shallow. In addition, the politics of the organization makes problem-solving impossibly inefficient. To me, the UN is a place full of bickering and single-sided solutions, thanks to the fact that it must ultimately act as a single entity despite having a heavily divided interior.

Often in the UN, tasks cannot be accomplished until one committee sends a decision to another committee which can enact UN decisions, which often requires the approval and collaboration of other committees. TL;DR? Bureaucracy. Cartoon by Clay Bennett.

While politicians can talk smoothly about issues, entrepreneurs actually address them. Entrepreneurs work directly with affected people, experiencing problems first-hand and gaining genuine motivation to fight them. Sidestepping bureaucracy, these people allow the broader community to join in on solving issues; exchanging ideas and equipping stakeholders with techniques encourages contribution from the people. Having the UN solve problems alone prevents the actual people affected to have a say in the matter. Social entrepreneurship also allows people to specialize and focus on specific issues, diving deep enough to fix them effectively. Involving multiple entrepreneurs means that different businessmen will target specific issues that they care about most, leaving other entrepreneurs to deal with other issues. As a result, social entrepreneurship offers a flexible, efficient, and directly motivated effort to find solutions to social problems.

One thing I enjoy about COMM 101 is that there isn’t just a focus on large, famous firms, but also a focus on local small businesses. Learning about small businesses helps us understand all facets of business in a single firm. So, as I cruised around The Globe and Mail, I was happy to chance upon an article about a local business in Vancouver (which is also coincidentally written by Jeff Kroeker, a beloved member of the COMM 101 team) called Tealeaves. Tealeaves is a small business that is famous worldwide for its mastery in producing the world’s finest teas, working with renowned restaurants and hospitality like Mandarin Oriental and Four Seasons Hotel. The article is a case discussing how Tealeaves had to change its sales strategy from selling only to large venues like hotels to selling directly to individual tea drinkers, thanks to competitors reaching consumers first and positioning themselves with their brand names in the consumers’ minds.

Tealeaves is a Vancouver-based firm positioning themselves as the world’s leading experts of tea and its craftsmanship. Image from Tealeaves Logos.

I won’t spend this post talking about the business itself, but rather enter into my thoughts about the greater picture: is retail dying out? Many examples in class, like Dell’s successful virtual integration, seem to argue that relying on wholesalers and retailers is costing producers much money. On one hand is price, with original prices driven down so retailers have room to make a profit off of escalated pricing. Another aspect is operations, with direct sales reducing the risk of inventory turnover. This article reveals a third side: how direct sales strengthens a product’s marketing, giving it the ability to position itself as the best product in the consumers’ minds.

If financial, operational, and marketing advantages exist by cutting out the middleman, is there even a future for retailers anymore? Will our beloved department stores die? Well, maybe –  I hardly shop at The Bay anymore. But depending on the product, there is always room for retail everywhere. Think how ridiculous it would be if Coca-Cola only sold coke at Coca-Cola stores. Pretty impractical, and they’d lose large access to the market. They need convenience stores, wholesalers, and grocery stores to distribute their products to all consumers. In addition, e-commerce firms like Amazon and Shopzilla show how technology can streamline information and prevent inventory turnover, making e-commercial retail a potential successor to the conventional physical location model of retail.

In short, let’s give a sigh of relief for retail distributors. Reality needs them and technology saves them. It’s been fun thinking over cups of tea.

Because the most recent class topic is “Innovation and Entrepreneurship”, I felt it fitting to introduce Mark Suster’s blog: Both Sides of the Table. A two-time entrepreneur and venture capitalist (VC) based in Los Angeles, Suster gave me an understandable, witty, and concise introduction to the world of entrepreneurship and venture capitalism, using his personal experiences to bring the reader to the perspectives of both investor and innovator – hence, “both sides of the table”.

Mark Suster: entrepreneur, angel investor, writer. Image by GRP Partners via CrunchBase

In one post, Suster criticizes journalists who condemn companies as unprofitable and discusses why startups must care more for growth than revenue. Suster uses accounting, financial, and strategic arguments to explain how VCs disregard companies who, though graced with giant gross profit margins, lack very little vision for long-term growth and therefore hold little lifelong value.

The concept is interesting for me because it shows me how so many problems in business are caused by thinking too much in the short-term. Public firms commit financial fraud because they feel trapped by the need to appear strong in the short-term for shareholders. Transient advantage is lost by companies who do not plan ahead and opportunity costs rise when businessmen don’t prepare a framework to take advantage of shifting markets. For me, this is a reminder that businesses must remain fixed to their goals and values for the long-term. Andrew Mason from Groupon seemed aware of this fact as he argues that “going public” confines an entrepreneur to pleasing shareholders and slugging through the short-term.

It really helps to look at professional blogs when seeking inspiration. Suster’s casual yet engaging tone speaks to my heart as a model to consider. What’s also interesting is that my understanding of articles found in business blogs has improved tremendously thanks to the toolkit I’ve been building in this course (i.e. Suster says “a dollar next year is worth less than a dollar today”, which I wouldn’t have understood if I didn’t learn the time value of money).

I’ve recently been following a topic on my classmates’ blog posts about the effect of music streaming on the music industry. The initial post believed that music sales in the form of physical media (i.e. CDs, vinyls, etc.) is crumbling as digital downloads and streaming apps like Spotify and Songza meet consumer demand today. My classmate Will then heatedly responds, arguing that while physical media sales are declining, this doesn’t necessarily hurt artists as it is merely a shift in revenue streams from CDs to royalties paid by streaming companies. In my opinion, music streaming is hindering physical music media sales, and despite music streaming’s attempt to compensate artists, our music developers are not getting very much help.

Spotify director Sean Parker and anti-piracy campaigner and ex-Metallica drummer Lars Ulrich joining forces against piracy. Photo by Kevin Mazur from WireImage.

After taking a closer look at relevant articles, I discovered that music streaming companies’ “huge royalty payments” to artists are only “huge” in proportion to the profit margin of these companies. For the hard cash going to every artist in need of funds, these royalties are hardly sufficient to keep the bands moving. Damon Krukowski, an alt-guitarist for Galaxie 500, revealed that 6000 streams on Spotify netted his band a measly $1.05 to split. Of course, only the most popular artists will benefit, where millions of streams bring real cash to their pockets. To me, this means the music industry will lose most of its non-mainstream artists, alienating the large segment of customers who aren’t really keen for auto-tuned pop. Ultimately, a significant portion of income for music is cast off, and less money is entering the industry overall. The low profitability of music-streaming also puts into question if music-streaming can last long enough to adequately fight piracy. Within a few years, Spotify might file for bankruptcy and the Pirate Bay will continue to reign.

In short, music streaming will never provide income to artists the way records and radio sales did, even as a complete replacement. For that reason, I think Will should know that one can’t blame HMV for complaining.

The BC First Nations’ adamant stand against dam building by BC Hydro can be infuriating for some at first. As some of my classmates have said, it seems unfair that First Nations are abusing their privileges won at court by seizing territory beyond their lands, even while they complain about unfair treatment and the tyranny of corporations in destroying their lands.

However, the obstinance of the First Nations is altogether admirable and justifiable. In fact, it is harsh to condemn them when Canadian industrial expansion has already inflicted much pain upon the Aboriginals – “the Cheslatta flooded from their lands; the Haisla, trying to save the Kitlope  from logging; the Ingenika and Fort Ware people, flooded from their lands; the Nuu-chah-nulth, fighting for their place in the battle over Clayoquot Sound, and many more.” With this media coverage exposing the suffering of First Nations at the hands of Canadian business, it becomes more and more apparent that industrial pushes are transforming into something akin to genocide.

Senior members of the First Nations authorities responsible for fighting Canadian industrial expansion into BC native lands. Photo by David P. Ball.

While BC Hydro can insist that Site C’s dam is important to the BC economy, media coverage illustrating the losses of First Nations people will cast the project in a very negative light, souring the dam’s value proposition. Worried about accusations from abroad that it doesn’t protect human rights, the Canadian government will then likely step in, regulating BC Hydro to the point where the massive project investment is no longer profitable.

With the government and media ravaging the company’s cost structure and value proposition, one must consider whether the “gold” BC Hydro is seeking in Site C is worth the genocide. While business logic can clam that energy capacity will be needed for the future, that logic will just have to wait.

Becton Dickinson’s merger with CareFusion sheds a new light on the relationships of companies in similar industries. Both specializing in medical equipment for hospitals, these companies might seem to be destined rivals to a COMM 101 student. However, this merger shows how it’s not always smart for companies to waste resources in a wrestling match. Businesses don’t always have to view markets as a free-for-all.

Image from ZUMApress.com. Taken from The Wall Street Journal.

The first thing that can be praised about this merger is that it shows how companies can quickly adapt their value propositions to meet customer needs. Sometimes a firm cannot afford the “transfiguration costs” associated with transient advantage to exploit the changing market on time. Short of the necessary operations and resources, it needs to look externally. With hospitals desiring more cost-effective and useful equipment, BD and Carefusion knew that one fast way to exploit the changing needs of hospitals is to join forces so that resources and infrastructure are quickly established to begin cashing in.

The concept of a merger also shows how firms don’t have to be limited with one single business model like differentiation focus strategy. Instead, firms with differing models can merge to form hybrid models,  offering cheaper AND specialized products on a broader market. This is very potent when merging firms occupying different market segments of the industry. With BD specializing in catheters and CareFusion focusing on catheter-loading machines and software, the newly merged company will be able to grab a larger market segment with a more diverse pool of customers.

Being in a COMM 101 class that spent plenty of time discussing government intervention and ethics in business, I decided to share a New York Times article about the state of New York filing an antitrust lawsuit against a pharmaceutical company. According to New York’s attorney-general, Forest Laboratories, owned by Actavis, is seeking to force patients (consumers) to switch into a new line of dug for treating Alzheimer’s Disease while discontinuing the low-priced generic versions of the medication. To make a long story short (read the embedded article!), Actavis is creating a monopoly by using patents and its small niche as a rare disease drug producer to kick out competition, much to the possible expense of Alzheimer’s Disease patients.

Fig. 1) Actavis’ old drug, Namenda, is merely switched into Namenda XR, simply a pill with higher dosage to make administration more convenient. Image by Forest Laboratories Inc.

The heart of the matter lies in government control: to what extent is New York justified in suing Actavis? While desiring competition, US courts have traditionally been uneasy about barring companies from developing new products. Why? It suppresses innovation and the incentives for large companies to develop drugs for patients suffering rarer diseases. That argument is very valid with the case to Actavis, a leader in producing drugs for the notorious Alzheimer’s Disease. The image of governments barring industrial firms from innovation and development is a classic doomsday picture of the “end of economic liberties.”

However, it must not be ignored that with a monopoly, Actavis can exploit the situation to maximize personal gain (as per the assumptions of most capitalist economic models). This clearly puts Alzheimer’s Disease patients at risk. What makes this situation special is that Alzheimer’s Disease patients are not just consumers, but vulnerable consumers. Due to their reliance on the drug, patients have virtually no bargaining power over Actavis as they need it to survive! Also, if Actavis is going to be content with monopolizing its market, it’ll have little incentive to innovate new and better products for patience, defeating the argument that the lawsuit would restrict innovation from corporations. Lastly, pushing away patents allows other companies to innovate and bring medicine to needy patients. This will offer expanded room for jobs, fair prices, and an advancing society in one package. Ultimately, the action of government intervention can easily be justified when the product is limited and needed for the survival of a vulnerable group of people. Such products are too precious to be held in the hands of a company whose business model is driven by self-interest and must be guaranteed by a more “generous” entity.

Image Citation

Fig 1. Forest Laboratories, Inc.,. (2014). Diagram comparing Namenda with Namenda XR. Retrieved from http://www.namendaxrhcp.com/Assets/images/dosing-current-patients.png. (accessed September 14, 2014).

In technological industries, patents have traditionally been a keystone for maintaining an innovator’s sustainable competitive advantage. Patents have even been remarked by many SWOT analysts as a strength for producers, ensuring that a company can maintain a monopolistic hold in its niche in the market and therefore maximize revenue.

However, last summer Tesla Motors Inc. seemed to have acted against business logic by sharing its cutting-edge electric car patents to other companies. While this seems counter-intuitive for a relatively small-sized innovator seeking leadership in its industry, Tesla’s actions demonstrate how corporate social responsibility (CSR) and business opportunity aren’t necessarily “a zero-sum game.” Elon Musk’s blog post to customers explains that Tesla’s open source strategy does a variety of things that benefits the company:

1. It allows more companies to participate in the development of emission-less transportation, spreading Tesla’s vision for a green and environmentally sound world.
2. It expands the domain of Tesla’s leadership. By allowing competitors into the electric car niche, Tesla has the opportunity to prove to customers that it really is the paragon of technological innovation in the transportation industry.
3. It encourages more of the world’s brightest minds to participate in the process, accelerating the process of development and expanding the pool of talent that Tesla can access.
4. The seemingly altruistic nature of the act gives Tesla an image of a socially responsible organization.

“All our patent are belong to you.” Pool photo by Steve Jurvetson

The pluses of satisfying all stakeholders (customers, communities, the business) to progress the whole of society are affirmed in Freeman’s Stakeholder Theory. Furthermore, Milton Friedman’s argument that companies only incorporate CSR when it helps maximize profits is also exemplified in this case. Reconciling these two viewpoints with Musk’s initiative testifies how businesses can thrive by incorporating business ethics into their model, seeing CSR as opportunities for private gain.