WeiJia Qin's Blog

I recently came across a very interesting post by fellow Sauder blogger Kashmir on the mystery of increasing tuition fees. As poor stduents who can barely scrape enough together to make ends meet, undergraduates definitely do not like to see continuous increases in tuition on a yearly basis. However, this is precisely what is happening all over the nation. As Kash mentioned in her post, average undergrad tuition fees increased from $4, 942 to $5, 138 in 2011. Commerce students face the biggest increases, even here at UBC.

What explains this general upward trend in tuition fees is the ever-increasing demand for higher education. Faced with high demand from both domestic and international students, universities have the ability to admit and reject according to their own standards. This increased selectivity can be seen in the higher admission averages each year. However, such a trend also provides universities with massive supplier power.  After all, alternatives to a university education seem less and less favourable in the consumer (student’s) eyes.

Kash mentioned a very interesting idea on universities offering a “differentiated product”, thus providing them with more supplier power. I believe this definitely has to do with the ability of some prestigious universities to conveniently “bump up” their tuition, because they are able to offer unique eductional methods and good learning fascilities that students will not be able to obtain elsewhere. Moreover, parents and students are also significantly affected by each university’s “brand image”. The university of Toronto, for example, is able to charge significantly higher tuition than its counterparts in the Maritimes provinces because of its reputation as “Canada’s best university.”

Education, unfornately, is an inelastic good. With rising trend in demand, bargaining power of educational institutions will continue to go up. Students as individual consumers have little they can say about the increase in prices, unless they opt to drop out altogether and face lower wages. The only way to solve this problem is to set a cap on how much universities can charge students for an undergraduate degree, thus resulting in more students with the ability to live economically sufficient lives.

Photo credit: http://www.theglobalcity.org/wp3/?page_id=288

Credit:
https://blogs.ubc.ca/kashkaur99/2011/10/14/the-mystery-of-increasing-tuition-fees-is-it-supplier-power/#comment-7  (Kashmir’s post)
http://www.statcan.gc.ca/daily-quotidien/100916/dq100916a-eng.htm (Statistics Canada’s information about recent tuition fees)

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On the topic of successful entrepreneurship, much can be said of Facebook, Windows, and Apple. However, there is a start-up company just as innovative and refreshing as its technology-dominant counterparts: Northland Power Inc. Founded in 1987 by James Temerty, the company redefined a brand new venture within the Cnadian market: that of independently producing electrical power.

During the 1980s, few were thinking far ahead enough about environmental sustainability and conservative innovation. However, Tmerty was ahead of the game when he began his successful venture. Temerty began by using recycled wood residue from nearby sawmills as fuel for production. He at first only produced from a 10-megawatt power plant in northern Ontario. Today, the company has grown into a large electricity provider for communities in Ontario, Quebec, and Saskaetchwan. By using environmentally-friendly green biomass-fuelled power (as opposed to fossil fuels), the plant produces more than 815 megawatts of electricity for power consumers. Temerty says that he plans to expand into other parts of Canada as well as the United States in the near future.

Northland Power Inc. is a successful entrepreneuring venture not only because it was able to become profitable, but also because it exemplified a level of forward thinking and innovation that was ahead of its time. It is due to this fact that the company was able to obtain a leadership position in the clean-electricity industry in Canada, and capitilize on a simple, sustainalbe idea.

Picture source: http://intuitech.biz/?p=1434
Source: http://www.ey.com/CA/en/About-us/Entrepreneur-Of-The-Year/Awards-and-events/2010-winner-profile—Temerty

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When many people think of successful social entrepreneurship ventures, catering is rarely the first thing that comes to mind. Catering is a difficult business, and since 2008’s financial crisis, it has also become a shrinking business.

It is surprising, therefore, that many of Canada’s charity social services agencies run successful catering services. Vancouver’s own Potluck Cafe and Catering is one such example. This not-for-profit organization is projecting a $1-million sales in catering in 2011.

One of the main aims of catering not-for-profit organizations is the reincorporation of people back into society through training. In Potluck’s case, 30-40% of staff are trainees who suffer from mental issues, housing insecurity, and addiction recovery. However, this aim also acts as an anchor that weighs down the business’s competitive edge, as it brings an image of lack of professionalism and premium quality to its services.

“We can’t mess around–we’re trying to make money back for our community. It’s not a charitable thing.” Said The Stop’s executive director Nick Saul to Globe and Mail. This sums up the basic sentiment of the organizers of chartible catering. Programs within the organization are run by professionals within their field, all seeking to earn as much money as possible for the organization.

What essentially makes The Stop successful is its ability to offer its customers a unique point of difference while still offering top-notch quality services. The catering program, run by top-shelf chef Chris Brown, first started gaining momentum when Brown decided to cook fundraising dinners to support the program. Corporate donors and potential customers were satisfied with the services but also were keen on exemplifying corporate social responsibility. Many organizations that have hired The Stop also signed on as donars.  While essentially paying for the same services, organizations can now enjoy the positive image of supporting local charities and giving back to communities.

I agree with The Stop’s executive director in that a successful social entrepreneurship is not simply a “charitble thing” with good intentions to do well for the community. Rather, it needs the the successful infrastructure, innovation, and marketing in order to thrive in a competitive market, just like any other entrepreneuring endeavour.

Photo Credit: http://www.yummylocal.com/news/the-stop-community-is-growing/
Credit: The Globe and Mail; Charity, one canape at a time (Chris Nuttal-Smith); Wednesday, November 16, 2011

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Recent actions by influential mining companies show that investing towards environment protection can be economically sustainable and profitable.

Within the mining industry, energy consumption takes up almost 25% of production costs. Companies such as Barrick Gold Crop. and Rio Tinto PLC are investing significant amounts of money in building reneweble energy infrastructures. Barrick Gold Corp, for example, has recently initiated its $70 million wind farm project in Chile. The company’s vice president exemplifies the sentiment that this is one of many renewable energy projects that will be taken on in the future. Other mining companies are following suit.  Their collective actions show that renewable energy is more economically sustainable in the long term than traditional forms of energy.

These companies are taking the initiative to make long-term investments beneficial to the environment, even ahead of government policies, which have yet to find ways to regulate the industry through carbon taxes and credits. I think that the “green revolution” that many industries will go through in the future will come only partly from government pressures. More importantly, it will come from pressures within the market for innovation and retaining a competitive advantage. For example, in Diavik Diamond Mines Inc.’s case, investment in a $30 million wind farm is projected to save about $5 million each year in diesel costs. No matter if the decisions are driven purely by economics or not, this turn towards sustainability is reassuring.

Photo credit: http://www.outback-australia-travel-secrets.com/finding-jobs-in-the-mining-industry.html
Credit: The Globe and Mail, Miners turn to renewable energy to cut costs (Brenda Bouw), Wednesday November 16, 2011

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I recently read a post on Herb Greenberg’s blog, Market Watch, which critisized the US government’s decision to take executives of Citigroup, Merill Lynch, and Countrywide to hearing on CEO Pay and its adverse effects on the mortgage crisis.

The post took the position that CEO pay has absolutely nothing to do with the mortgage crisis and that it is merely the government who is stirring up a fuss about nothing. It backs up this position with the argument that the compensation structure of a company is available to all potential investors in the annual proxy. If the investors did not like the structure, they could simpy choose not to buy the stock. Moreover, even when they do take part in buying the stock, they could still influence the injustice by taking an activist role and kicking out the management and board.

“It’s really that simple.” The blogger comments.

I, on the other hand, do not completely agree with this idea. CEOs being paid enormous amounts of money for the work they do is not just a matter of a ‘simple solution’. It shows just how much these higher level management people are able to influence society. As I had mentioned in my very first post on the unethical actions of AIG, higher level executives have the incentive to make decisions that may cause enormous collateral damage on society. Their compensation rewards them in such a way that would be beneficial to them to disregard the needs of others.  

Therefore, I believe that the government did no wrong in subjecting the actions of these executives to questioning. After all, no single stock holder has as great an influence on the future of a company as its CEO. Moreover, due to the potential conflicts of interest between different stakeholders, it is highly unprobable that they would cooperate to oust an entire management team and put their own investments on the line. It’s not really “that simple” and sometimes there does need to be a intermediary who steps in to correct the unbalance.

Photo credit: http://vator.tv/news/2010-08-31-what-a-ceo-does
Credit: http://blogs.marketwatch.com/greenberg/2008/03/ceo-pay-congress-butt-out/

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A recent post I read written by fellow Sauderite Lisa Wu (Occupy Wall Street: UNEMPLOYED, INDEBT, AND FRUSTRATED) mentioned many interesting opinions on why people are so angry with the actions of Wall Street in recent years. To provide some background: recently, there has been many protests against the coporate greed, political dominance, and immoral behaviour of Wall Street. Wall Street has been identified as a culprit of American Recession, which has widened the income gap in America and left many unemployed without a means for making ends meet.

I completely agree with Lisa’s suggestion of reducing the ridiculous amount of money paid out to higher command employees by corporate companies. In my opinion, these ‘higher-ups’ are being paid much more than they deserve. Managing entire coporations may be difficult, but there are millions of workers who are working just as hard and yet are being compensated on a much smaller scale. I feel as if people at the higher end of the corporate ladder are taking advantage of their power within the coporation for selfish reasons. Many are gaining wealth at the expense of growing unemployment and increasing debt. Moreover, the public is, in a roundabout way, forced to pay for the mistakes that Wall Street commanders are making through taxation. The government pays large bailouts for the businesses that have failed because of the excessive greed of those who run them. This is all at the expense of meeting the needs of the very citizens whose lives are most affected by these failures.

Many see the situation of the Wall Street ‘dictatorship’ as flaw of capitalism. Wealth is being taken from the poor by those who are in control of the economy, who also have enough power to influence important political decisions. I think this is a time where the government needs to step in and  ensure that basic equality within society is still being observed.

Credit and Photo Credit: http://wearethe99percent.tumblr.com/
Credit: https://blogs.ubc.ca/lisawu/2011/10/10/occupy-wall-street-unemployed-in-debt-and-frustrated/ (Lisa’s blog)
https://blogs.ubc.ca/lisawu/2011/10/10/occupy-wall-street-unemployed-in-debt-and-frustrated/

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“The departure of real commodity prices from their mean has been so great that Grantham suggests there is a prospect for a significant correction…[such correction] will be amplified by speculation and will develop bubble-like overshooting” Says Marshall Auerback, global strategist at hedge fund Madison Street Partners. What does this mean? It means that the reason commodities such as cotton and minerals have had such a sharp rise in recent years may be due to the fact that there exists a commodity bubble not different from the housing bubble that set off financial distaster in the United States. There may come a day in the future when the prices of these goods ‘crash’ to very cheap levels.  According to Grantham’s findings, commodity prices have been declining at a rate of 1% each year since the 20th century.  In just the past ten years, however, the prices have gone up significantly.

However, as Globe and Mail columnist Eric Reguly argues, oil is a special exception when it comes to analyzing the future trends of commodity pricing.  The reason that oil prices are remaining relatviely high through the global financial crisis of 2008 and the European debt crisis is because of a pervasive resource deficit. According to the oil analysts at Barclays Capital in London, a global oil supply deficit is an enormous issue that is not being acknowledged to scale. The theme of global economic slowdown is wrongly the predominant theme within markets.

In the future, according to Reguly, it may be possible that oil prices will fall in order ot comply with their long-term average price. However, I don’t this this does much to solve the real problem: the global oil scarcity. I believe that the correct pricing of oil should be determined by its scarcity value.

This Globe and Mail column provides a great, detailed account of the situation.

Photo credit: http://www.seanews.com.tr/article/MARKETS/47957/Markets-Oil-prices/
Credit: http://www.theglobeandmail.com/report-on-business/commentary/eric-reguly/why-oil-isnt-behaving-like-other-commodities/article2201928/

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Having only the notion that the European debt crisis was “bad”, I never quite understood the specific mechanisms which gave rise to the problem. After doing some research on this issue, however, I realize that it’s not as complicated as it’s made out to be. It all has to do with the faulty financial decisions of each country that got tangled up into an international frenzy of lending and borrowing.

It all started when…

Members of the EU decided to use a universal currency: the euro. This allowed countries such as Greece, Portugal, Italy, Ireland, and Spain to borrow money at the same interest rates as Germany.  As American writer Michael Lewis put it: “The rest of Europe, in effect, used Germany’s credit rating to indulge its material desires. They borrowed as cheaply as Germans could to buy stuff they couldn’t afford.”

To exacerbate the problem…

Inflation rates for each country was different; namely, inflation is higher for countries like Greece and Italy than for Germany. Moreover, the inflation rate for these countries were higher than the interest rate charged on their loans.

Countries started borrowing excessively…

Because it was such a good deal to take loans, both the citizens and governnments of these countries started to accumulate enormous amounts of debt. To get an idea of how much, Greece currently owes 160% of its GDP. Spain, on the other hand, has real estate debt that amounts to 50% of its GDP..

Now the European Central Bank has to step in…

Even though Greece is rated 126th with debt (the least likely country to pay off their loans) ECB will continue to buy its government bonds and give out loans. Countries like Germany end up giving money to indebted governments so that the money can somehow end up in banks which will be able to repay the loans. The whole process is convulated and bordering on bizarre.

So why doesn’t the other European countries just switch back to their old currencies?

Switching would at a glance seem to solve the problem altogether. Countries like Germany can just reissue large amounts of its own currency to pay off the banks right? In reality, however, switching would produce a large burden on citizens. They will be forced to convert their current euros to other valuables, which will lead to a full-on bank-run.

Thus…the only solution the EU has at present, is to continue using the ECB to supply countries like Greece and Spain with the money they need.

Photo Credits:
1) http://www.thedigeratilife.com/blog/european-sovereign-debt-crisis-investments/
2) http://www.tradingpetroleum.com/currency_exchange_euros.htm

References:
http://www.rediff.com/business/slide-show/slide-show-1-all-about-european-debt-crisis-in-simple-terms/20110819.htm
http://www.cbc.ca/news/world/story/2011/09/26/f-voices-euro-debt-crisis.html
http://news.yahoo.com/greece-europe-struggle-contain-debt-crisis-061201682.html

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Why are products from Apple so much more expensive than similar products from other brands? Microsoft has even accused apple of imposing an “apple tax” on those who choose a Mac over a PC. How is Apple able to remain competitive yet still maintain its high prices? With this question in mind, I searched for ‘apple brand positioning’ on google and found a great commentary called Understanding Apple’s positioning.

The answer to my question, according to the article, lay Apple’s premium product positioning. Using a strategy called “needs-based-positioning”, Apple’s line of products are targeted to a consumer base that is less price sensitive. Drawing from micro 101, with a more inelastic demand curve, it would be a better choice for Apple to maintain its current pricing. Moreover, Apple`s brand image is one that sets itself apart from other products through innovation and quality. If Apple did indeed lower its prices to appeal to all segments of the market, it would break the ‘promise’ made by its brand and cause confusion among consumers.

Apple’s marketing strategy, in fact, is just as innovative as its product line.  Instead of directly competing with other products, it has successfully created a ‘barrier’ throughout the years to prevent its competitors from entering into its territory. By continuously increasing pricing on newer generations of its products, Apple has acquired a position in the market as the leader of innovation and quality. If other brands wished to compete with this position, they would have to undergo expensive marketing campaigns and product redesign  while running the risk of losing their more price-sensitive consumer base.

Apple’s higher pricing is not only indicative of its premium quality, but also part of its successful strategy of assuming a particular niche within the market and maintaining an intact brand image.

Photo Credit: http://www.joyoftech.com/
Credit: http://switchtoamac.com/site/understanding-apples-positioning-part-1-a-premium-brand-at-a-premium-price.html

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In an article I recently read called Wall Street’s Economic Crimes Against Humanity, a very good issue was brought up regarding the root cause of unethical and often dehumanising practices that corporations commit in order to maximize their profits. Are these practices brought on by ineffective organization or individual moral breakdowns? The arcticle addressed the immoral conducts of financiers of AIG, who irresponsibly completed transactions for the sole purpose of increasing shareholder value. These executives received millions of dollars in bonuses because they were awarded based on the exchanges they achieved, not on the destructive consequences of the after effects.

The circumstances that brought about their actions were two-fold: first, as according to Friedman’s model, the executives who made these decisions were so far detached from their ‘social responsibilities’ that they had no concern for the people whose lives were devasted by their actions; second, the structure of the business itself rewarded them solely for their short-sighted achievements, thus making their actions temporarily ‘morally correct’. As according to the UN Commission on Human Rights, “transnational corporations and other business enterprises, as organs of society, are also
responsible for promoting and securing the human rights set forth in the
Universal Declaration of Human Rights.” I believe that in order to achieve this, executives should be held accountable to make correct personal choices, not only to satisfy short-term business goals, but also to complete their first and foremost social responsibility to humanity.

Photo Credit: http://www.usfst.com/news/aig-sells-asian-unit/
Credit: http://www.businessweek.com/managing/content/mar2009/ca20090319_591214.htm

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