Steve Dunford's Blog

Nicole Chan’s blog about Walmart‘s declining success was very interesting to me. For a long time now, Walmart has been considered an industry giant and controller, leaving very little room for other competitors. In recent years however it’s clear that Walmart has been losing some market share to other supercenter rivals such as Target, Kmart, Real Canadian Superstore, and Zellers.

Just as Nicole said, this is in part due to the industry shakeout, but porter’s 5 forces better explains why walmart has been losing control. Although barriers to entry are fairly high because of the massive capital investment required, the majority of walmart’s lost market share has gone to expanding competitors already in the market. The expanding competitors also increases the buying power in the industry. Supplier power has always been quite low in the supercenter industry, whereas substitutes have always been very high because most of the products sold are generic products that can be found in many other stores. Overall, the expansion of walmart’s competitors is causing an increase in the industry rivaly, as well as consumer buying power, which is bad news for walmart. Moreover, many customer’s are choosing to substitute away from walmart to other supecenters (when substitutes are available) because of walmart’s notorious reputation as a supercenter bully to communities and suppliers

This news story from the globe and mail is about the Swedish furniture giant Ikea. Apparently the company benefitted from forced prison labour in East German in the 80’s, and sis now expressing regret. After a documentary that aired in Sweden revealed Ikea’s little secret, the corporate giant started looking into their suppliers production methods throughout that time frame. Ikea is still looking into the problem for further details, but it is confirmed that Ikea bought goods from suppliers using forced prison labour.

I find this new article very interesting because it relates to the classroom discussion on business ethics. Obviously the use of forced prison labour is unethical, but i find it odd that Ikea is only now expressing regret. Apparently Ikea had no idea how the products they sold where manufactured, but if that’s the truth then it is only because of their negligence. Either the company didn’t have the quality and safety standards necessary to check out their suppliers, or someone in the company kept the prison labour a secret.

This relates many comm101 student’s initial blog post regarding the ethics of outsourcing manufacturing to third world countries. I hope that in modern business, appropriate control systems are in place to ensure that this sort of unethical production is not happening anymore, and that employees are working on their own accord, in appropriate conditions, for fair wages.

This article states that due to new technology available, the US is now able to access and drill previously unavailable oil. This put’s our large neighbour in place to be the largest oil producing company in the world – above even Saudi Arabia. But how does this affect Canada? Well the United States are the primary importer of canadian oil, and have long been considered a permanent customer for all the excess oil canadian companies can get their hands on.

If the States were to become self sufficient for oil production, the repercussions to Canada would be drastic. Our GDP would suffer from the drastic drop in exports, tons of Canadian jobs would be lost, and many Canadian oil companies would go bankrupt. This would cause a decline in the Canadian oil industry, which is very bad news in contrast to the growth the industry has been experiencing.

Although the Unites States increase in oil production may be bad news for the Canadian economy, I think it is good news for the environment. The consumption of oil products for fuel is detrimental to the environment, and having less demand for Canadian oil will be an incentive for Canadian companies to switch out of the dirty oil market and into cleaner fuel sources.

After reading this article about the remodelling of the Canadian Grain Commission, i’ve started thinking about the operations of the Commission. The Grain Commission itself is responsible for insuring the quality and safety of the grain produced by Canadian farmers, along with controlling farming regulations and carrying out farming related research. Until now the majority of the Commission’s operations have been funded by the federal government. But why the sudden change from federal funding, to private revenue gains through user fees? The large grain companies may have no problem paying the significant increase in fees, but many Canadian farmers will probably have a different story. 

In the article, the Grain Commission is quoted to admit that many of the operations are out of date, and the entire Commission desperately needs to be modernized. Certain ‘out of date and redundant’ operations are being dropped, but I think the Canadian Grain Commission needs to focus more on it’s operational efficiency and logistics to cut costs then the operational divisions. Sure it’s always a money saver to shut down useless inspection procedures, but instead of drastically increasing farmer fees to cover the costs, the Commission should focus on reducing the operating costs incurred. By overhauling the operational efficiency and logistics of the company, the Canadian Grain Commission may be able to keep the farmer’s and themselves in the money.

In this article, CIBC chief economist Avery Shenfeld warns the canadian government about trying to control the household debt from mortgages. I chose this article to blog about because it relates to my last blog regarding the bank of Canada’s mixed messages of boosting GDP growth while reducing consumer spending.

This ‘careful what you wish for’ article refers to Flaherty and Carney’s attempts to reduce household debt by restricting government insured mortgages. According to this article, home sales are down 15% from the 1 year previous benchmark. Shenfeld reports that for every 10% per year drop in house sales, it will have -1% affect on the GDP growth of the country, given the home sales wealth effect. Furthermore the construction of new homes is expected to slow down with the decreasing home sales, so it is anticipated that this will have a significant negative effect on GDP growth as well.

All this negative GDP growth as a result of curbing consumer’s debt leads me to wonder if the leaders of the country’s finance are doing the right thing. Obviously increased levels of debt due to mortgages can be catastrophic, as seen in the housing bubble in the states, but in my first-year-business-student opinion, i think the the country should focus on increasing exports, and the government should increase spending. Through the multiplier effect, this will increase income in many households, while also boosting GDP. This will have a positive effect on both the GDP growth our leader’s are trying to attain, as well as the household debt to income ratio.

This story from the Globe and Mail addresses the Bank of Canada’s latest quarterly economic report. Mark Carney has recently announced that benchmark interest rate will remain at the very low rate of 1%. According to the Bank of Canada, our country is in the midst of economic expansion, but the growth rate of our GDP for the current year has not met prospected analyst expectations. Carney said that this growth shortcoming is the reason interest rates will remain so low until mid to late next year.

What i find very interesting about this article, is much of the text is about the Bank of Canada warning consumers about over spending on credit. Apparently the average household spending to income ratio has increased to above 160% and is now considered a threat to the financial system. Carney’s announcement that the economic growth thus far in 2012 has not met expectations, while warning consumers not to spend so much, is quite contradictory. If the overspending by households is seriously threatening the financial system, then why wait until next year to push the interest rates up. I find it unrealistic that the Bank of Canada can attempt to boost GDP growth, while saying that exports will not significantly increase until 2014, and warning consumers to curb spending.

As stated by ‘BusinessBlogger’ on this external blogging site, online trading is a fairly new concept in the world of finance. Online discount brokers from many major banks have been springing up with the creation of online banking over the past decade. Due to the fact that I participate in online trading, and because I am very interested in self-managed investments, I found this blog quite intriguing.

‘Business Blogger’ writes about the risks associated with online investing as if it’s an entire different game of trading, that is far riskier that the conventional method. In reality, its the same game in the same markets, the key difference being you don’t have to hire a full service broker and pay enormous commissions. Moreover, the author expresses their doubts about the online security and accessibility of the trading platform, but the banks that run the discount brokerages using the same top of the line security as their online banking websites

I do agree with ‘BusinessBlogger’ in the recommendation of using professionally managed portfolios, such as mutual funds, but personally I lean more towards exchange traded funds. I have found ETF’s to be just as effective as mutual funds, with the additional convenience of trading on the exchange, and usually having lower management fee’s then mutual funds. The author’s opinion of long-term investing completely depends on the investor’s time horizon.

Continue reading →

Ashley Belzil’s blog about the release of the iPhone 5 talks about the new features of the latest and hottest smartphone, as well as the consumer’s response to the release.

After reading this blog, I have to admit that i’m incredibly impressed by Apple’s marketing techniques and consumer loyalty. It seems that many consumers are disappointed by the new features (or lack there of) on the new iPhone, yet still millions of  units where sold within the first 24 hours of release. Why is this? As Ashley mentioned in her blog, it seems that many consumers put more importance in iPhone aesthetics and owning the newest iPhone rather then practicality.

I’m amazed that Apple inc. can make millions of dollars just by releasing the most anticipated technological device of the year. Whether or not the iPhone 5 meets consumer expectations in terms of practicality, Apple inc. sold over 5 million units in the first 3 days of release. The consumer loyalty and market share that Apple commands is impressive to say the least, and makes marketing Apple’s new devices that much easier. By being a successful company with a good reputation on innovation, Apple can effectively sell anything to their ‘die hard’ fans. The positioning that Apple has achieved in consumer’s mind is essential to their business practices, and makes it very difficult for competitors to rival Apple.

This article states and explains the growth in Canada’s hiring trends, in relation to the previous year. Based off the quarterly reports of job openings from Statistics Canada, this summer saw 263 000 new job openings, a 13.5% increase from the previous year. I think that this is an incredible increase, and that it shows good signs about the overall trend of the Canadian economy. The increase in jobs means that the Canadian

unemployment rate will decrease slightly, while also increasing spending throughout the country. This will lead to an overall boost in Canada’s GDP. The article states that most of the 263 000 jobs opening where for construction and mining. The way I see it, this job allocation has both a major pro and con. The Negative is that both mining and construction is largely seasonal work, so the summer increase in jobs may be only for that particular season, and there may be a resulting increase in seasonal unemployment come winter. The good thing  is that mining and construction will both benefit the country as a whole. From mining canada’s exports in oil and other precious metals may increase, and the government spending that goes into a lot of public construction will increase consumer spending many times over. This all leads to an increase in Canada’s GDP, which happens to be the major measurement of economic health. In conclusion, I feel that this seasonal increase in jobs can only benefit the country as a whole, and hope that jab opening continue to increase over the following year.