Month: November 2011

In a blog post by Wendy Liu, Wendy criticizes the accusations made by the US government that China is manipulating its currency, undervaluing it so that more companies would have an incentive to move their production to China.

She argues that China is not purposely keeping the value of the yuan (the Chinese currency) low because China’s currency has historically been low and that it only seems like companies investing in China are getting more value because 1 USD gets the company around 6 yuan (hey, 6 is more than 1, right?).

Her argument is reasonable and I would definitely agree with it if 1 USD converted to yuan can buy the same amount of things in China as 1 USD in the US – sadly, that is not the case.

When determining whether a currency is undervalued, one must consider the currency’s real value, rather than its external value – and we determine a currency’s real value via its purchasing power.

Case in point: a 16GB SD card costs around $25 in Canada. Using a 1 to 6 conversion, one would naturally expect that same memory card to cost 150 (6*25) yuan, but in reality, it only costs 60 yuan in China ($10 Canadian).

From the above example, it can clearly be seen that purchasing power relative to external value of the yuan is much greater than most other countries, given China a comparative advantage. In fact, according to the IMF, at purchasing power parity, 1 USD will only be able to buy 4 yuan.

A recent blog post by Between the Lines, a blog that discusses the effects that technology and government technology policy have on business, offers its comments on SOPA, a bill recently proposed in the US House of Representatives

SOPA, or the Stop Online Piracy Act, along with a similar bill called PROTECT-IP (introduced in the US Senate), aims to further strengthen Copyright laws in the US (which are already, by far, the toughest in world) by:

1. Giving the US government a right to censor webpages that are believed to aid in piracy,

2. Making unauthorized online streaming a criminal act, and

3. Removing the safe harbour provisions in the Digital Millennium Copyright Act.

Between the Lines believes that SOPA will have huge ramifications on the future of the internet:

Because the safe harbour provisions are removed from the DMCA, online companies like Google, Youtube, and Facebook will now be criminally liable even if just one user posts infringing material (intentional or not) and they will continue to be liable even if they remove the material (which was not the case with safe harbour). Since it is virtually impossible for these companies to ensure that none of the millions of users post infringing material, they may be forced to shut down in the future.

While I disapprove of copyright infringement, I feel that the bill goes a bit too far in order to placate Hollywood lobbyists. This bill is also extremely shorted-sighted as the economic gains from increased Hollywood profits will be greatly offset by the economic losses incurred by crippling internet companies (whose growth rates greatly exceed all other sectors).

When it comes to entrepreneurial companies, one must give a nod to one of the most successful and risk-taking of them all: Virgin Group, founded by the daredevil British business magnate Richard Branson.

Branson had his first experience with entrepreneurship when he was 16 years old, selling records from the crypt of his church at considerably lower prices than competitors. It became an instant success and eventually forced the entire record industry to embrace large-scale discounting of recorded music.

Even though he was successful, Richard Branson was not done there – he then started a recording label called Virgin Records, signing once niche bands like The Sex Pistols and Faust.

Not satisfied with even two successful ventures, Branson and Virgin Group decided to get into the airline industry with Virgin Atlantic and the mobile industry with Virgin Mobile and countless other industries with: Virgin Drinks, Virgin Holidays, Virgin Radio… the list goes on.

Recently, Virgin has even started a company called Virgin Galactic, offering sub-orbital space flights to extremely wealthy passengers.

All in all, Virgin is a company that fits the definition of entrepreneur really well: it takes a lot of risk, venturing into markets that no other company has ventured into before and it gets rewarded for this risk-taking by the speed at which it generates wealth.

After reading Sarah Zhou’s blog post on Coca Cola’s new marketing campaign, I found myself strongly agreeing with what she said.

She believes that Coca Cola’s new campaign to save polar bears – by changing the colour of its cans to white in order to raise awareness for the threatened polar bear species and by donating $2 million over five years to the World Wild Fund – is a really effective one as it would improve Coca Cola’s corporate image by showing to the world that it is a socially and environmentally responsible one.

She is, however, concerned whether if Coca Cola really does care for the environment or whether this campaign is just another way for Coca Cola to make more money. Consider the Coca Cola is donating a measly $2 million over 5 years ($400,000 a year – and even less than that with time value of money), the latter is the more probable case. But no matter the motives of Coca Cola, this really is a win – win – win situation. The consumers win because they feel happier about their purchase of Coca Cola products, Coca Cola wins because of improved brand image and sales, and the polar bears win because more money goes toward their protection.