China Requesting US Technology Export Deregulation

Via Mr. Tony Tsai, CEO – BHG Retail Innovation Institute and EVP Operations – The BJ Hualian Hypermarket Co.:

"Ministry of Commerce urges US to recognize China's market economy status as soon as possible
Dec. 15, Yao Jian, spokesman for the Ministry of Commerce, says that the 21st Sino-US Joint Commission on Commerce and Trade (JCCT) is a good opportunity to promote cooperation between China and the US. China is urging the US to recognize China's market economy status as soon as possible. The US should deregulate the export of new and advanced technologies and products to China."

Google: The Democratization Engine

Google is the "Democratization Engine" for the world's shoppers and consumers.  Let's talk Android - 

I am leaving the charms of the iPhone and the Apple!  If a few decades in the technology industry has taught me anything, it is that closed systems have revenue spikes when they deliver on the unmet need, though quickly lose it as competitors emerge with more standardized and open systems.  It is more so at speed now as the consumer is empowered.  Sounds cliche because marketers have used "we are empowering the shopper/consumer to make intelligent choices", yet today, the marketer has a tough battle on had.  The shopper/consumer are empowering themselves.

My foray into Apple's world was with the Lisa... then came the standardization driven through the IBM PC compatible running DOS and Apple products took their niche spot in the market while a somewhat open and driven towards standardization system of the IBM compatible allowed a world of inventions to become innovations, from hardware, firmware to software.

Can history repeat itself? Yes, it can and will.  It is not a claim but reality that the Android based smartphones will trump the iPhone in growth and market share.  Unless - Apple decides to change "some" thing(s) in its approach.  Its differentiation is diminishing due to competitor offerings, while its lock on distribution through AT&T will be ending in the USA.  Its partnership with AT&T perhaps will add to iPhone's decline as Consumer Report recently rated AT&T as the worst wireless service provider, see here.  Also, the Consumer Report has declined to recommend the iPhone as well, details at Consumer Reports here.

The activations of Android based devices is growing at 110 million, 5X what they were 10 months ago.

Andy Rubin, head of Google's mobile software recently said, "We are web-centric."  This is the reason to believe that Google will be successful against Apple and Microsoft.  He further added, "We really understand distributed computing - and I think Apple really understands desktop computing."

For those who may have forgotten or don't know, Google quietly acquired Android, Inc. back in 2005, see Business Week article here.

Core to this transformation in the market will be, as Financial Times quotes Andy Rubin "Leaving developers free to create new versions of their apps, rather than forcing them to "jump through hoops" to seek approval each time, as Apple does, echoes the web's approach to rapid iteration and improvement."

See FT article here.

Next on Google's democratization list, my guess - The SmartGrid!!!  I will write more how it can accomplish it soon.

Organizational Transformation in the Financial Sector Due to HFT

"The rapid-fire growth of high-frequency trading, HFT, has spawned a new breed of market mavens whose backgrounds are far different than the traditional suit-clad Wall Street titans.  Their resumes are rich in rocket science and other non-financial fields and they may never have traded a stock, read an earnings report or scrutinized a balance sheet.  They are engineers, mathematicians and computer scientists—armed with cutting-edge technology and often located hundreds of miles from New York City."

Mr. Dharm Kapadia forwards an excellent article on a trend that is rapidly becoming mainstream in the financial sector holistically, see "Man Vs. Machine: The New Kings Of Wall Street" at CNBC here.  Please see my previous post on high frequency trading "Dis-ruptive Innovations - Technology in Retail Investment Sector" here.

Dis-ruptive Innovations - Technology in Retail Investment Sector

The Financial Times published a well thought through analysis on high-frequency trading and its impact on traditional and retail investors here... William Gibson's quote could be used to summarize the essence of HFT: "the future is already here, it's just not very evenly distributed".

Wikipedia defines HFT as - "High-frequency trading is the execution of computerized trading strategies characterized by extremely short position-holding periods".  Computerized strategies implies simple to complex algorithms and extremely short positions can mean micro seconds to ones that are never executed but are noise generators.

A quote from Kevin Cronin, Head of Equity Trading at Invesco stated: "Because of the predatory nature of some participants we have no incentive to post liquidity,” ... “There are 40 places where stocks are transacted and none of us has clarity of supply and demand on most [equity] issues. These are fundamental issues as to what the value of a securities market is".

Mr. Dharm Kapadia, who has advised The RBR Group (my company) on technology in the financial sector explained that:

"Inexpensive co-location has facilitated the growth of high-frequency trading (HFT) and will continue to support it in the future as computers and networks will only get faster. The individuals participating in HFT not only take on, and beat the big players, but also evade the regulatory agencies. All you can see is their "vapor trails" in the historical trade and quote data. The retail investor is miles behind the HFT participant; they're not normally going to get the best execution in this type of environment. Ubiquitous technology will allow the HFT trader to be faster, more nimble, and hard to trace."

Of course, within this macro-trend of explosive growth of HFT - the democratization of technology, and its power and speed will enable the astute fund management companies in retail investments to begin constructing a premier service that will become consumer grade in this coming decade.  And the first one of these services to market will generate aggressive premiums prior to the arrival of competition.

Interestingly today the Financial Times front page includes the article "High-frequency trades earn fine" here.  Excerpt from the article:

"US regulators are to fine a high-frequency trading firm, signalling sharper scrutiny of this type of activity, amid a broader crackdown on market abuse following the May 6 “flash crash”.

The enforcement action, brought against a small New York firm for “layering”, will be settled on Monday with the payment of about $2.3m in fines and disgorgement penalties, according to people familiar with the situation.

Layering involves traders entering multiple fictitious orders, which are then cancelled within seconds. The strategy is used to drive a stock price up or down, before using a real order to profit from the artificially inflated or depressed price.

It is one of the high-frequency trading techniques – alongside “spoofing”, in which traders feign interest in stocks to drive the price up or down – that some believe may have played a part in the 20-minute period of wild price gyrations on May 6 known as the “flash crash”."

China Update

Good friend Mr. Tony Tsai, CEO – BHG Retail Innovation Institute and EVP Operations – The BJ Hualian Hypermarket Co. forwards key China updates:

"Five future development trends of China's foreign trade. Five future development trends of China's foreign trade are analyzed by Liu Jingdong, a researcher at the International Law Research Institute at the China Academy of Social Sciences. The five trends are as follows: 1) China will maintain its leading position in worldwide foreign trade for a long period of time; 2) the structure of China's imports and exports will change and energy and resources trade will play important roles in China's foreign trade; 3) legislation and policies regarding the environment will have a significant affect on China's foreign trade; 4) the renminbi will become the main currency for China's foreign trade settlement; and 5) trade protectionism against China will exist for a long period of time and trade friction between China and its major trade partners will increase."

"Three big mountains" for Chinese economy: housing vacancies, the trade surplus and foreign exchange reserves. Chinese decision-makers will lie awake all night thinking of three numbers. The first is 65.4m, the number of vacant houses in China. Second is $28.7b, the estimated value of China's trade surplus in July. The third is $2.45tr, China's foreign exchange reserves. The three numbers reflect the distorted part of the Chinese economy. China is encouraging investment by suppressing the cost of capital and other factors. The cost to get this investment is the sacrifice of the interests of consumers. Low salaries and low deposit interest rates have suppressed the purchasing ability of consumers."

"Vice governor of People's Bank of China: China to gradually deregulate restrictions on cross-border use of renminbi. Aug. 31, Hu Xiaolian, vice governor of the People's Bank of China, says in an interview with foreign media that China will gradually deregulate restrictions on cross-border use of the renminbi. However, variation in the exchange rate will not solve the China-US trade imbalance. China is also considering allowing enterprises to invest in overseas markets with the renminbi."

"China expands scope of property tax pilot program; evaluation technologies become mature. The Ministry of Finance and State Administration of Taxation has expanded the property tax pilot program across the country. Each province can select one city to take part in the pilot program. In addition, the State Administration of Taxation has accelerated technical training of local tax officials in property tax evaluation."

"China creates new regional economic structure; breaking regional economic development imbalance problems. From May to Dec. 2009, nine plans for regional development were upgraded and made strategic national plans. This indicates China is trying to reverse the imbalance in regional economic development across the country and transforming its export-oriented economic development model, which depends excessively on external demand, as well as exploring an overall way to combine energy-conservation, environmental protection, ecology and civilization."

"China to accelerate construction of credit system in rural areas. Du Jinfu, deputy governor of the People's Bank of China, says China will accelerate the construction of the credit system in rural areas, further supporting agriculture through financial measures."

Pakistan - Flood Donation

A large number of folks have asked me to suggest a trusted source where they can donate for the Pakistan flood relief efforts.

I am an Advisor to Ms. Sarah Hashwani, Chariman of Board of Directors of the Hashoo Foundation and the Foundation itself, a family philanthropic organization that has been working in Pakistan for quite a few years, see website here. The foundation has UK and USA (501c3) offices and conducts philanthropic efforts in the two countries as well.

I have worked with the organization and have been impressed with the excellent recipient services the foundation offers. I have met many individuals whose lives have been transformed through the foundation's work. One of the breakthrough recipient service innovations the foundation delivered "Plan Bee" won the BBC World Challenge Award, see detail here.

As you review the Foundation's site, you will notice that it has both a current support focus and long-term rehabilitation plan as well. Rehabilitation will be key to the recovery of the country.

Thank you for choosing to donate whether through the Hashoo Foundation or another source.

Pakistan Flood Relief Donation - here.
Note that you can send a check to the US based organization along with being able to donate through PayPal.

Pricing

I previously blogged about pricing here regarding behaviors and pricing, and academic studies providing insights to develop strategies from.  Recently from McKinsey Quarterly on "Building a Better Pricing Structure" here, average review though:

"A pricing infrastructure can be difficult and costly to create. It requires investing appropriately, empowering the right people, articulating clear targets and goals, and managing risk. Yet the benefits of realizing true pricing excellence are worthwhile: a one-percentage-point improvement in average price of goods and services leads to an 8.7 percent increase in operating profits for the typical Global 1200 company.1 Since a well-executed pricing-improvement program often yields price increases of two to four percentage points or more, sustaining a long-term price advantage may represent roughly 15 to 25 percent of a typical company’s total profits."

Lateral Innovation - Network Problem Solution from Nature

I analyze "adjacencies" and "lateralities" in innovation to discover solutions from industries a sector specific or vertical expert perhaps may not choose to.  Here is an excellent example of engineering solutions for network problems validated in natural organisms through the research of Atsushi Tero at PRESTO, Japan Science and Technology Agency in his recently published paper in the Science, "Rules for Biologically Inspired Adaptive Network Design".  The abstract:

"Transport networks are ubiquitous in both social and biological systems. Robust network performance involves a complex trade-off involving cost, transport efficiency, and fault tolerance. Biological networks have been honed by many cycles of evolutionary selection pressure and are likely to yield reasonable solutions to such combinatorial optimization problems. Furthermore, they develop without centralized control and may represent a readily scalable solution for growing networks in general. We show that the slime mold Physarum polycephalum forms networks with comparable efficiency, fault tolerance, and cost to those of real-world infrastructure networks—in this case, the Tokyo rail system. The core mechanisms needed for adaptive network formation can be captured in a biologically inspired mathematical model that may be useful to guide network construction in other domains."

The researchers grew the slime mold using 36 oat flake template representing cities around Tokyo, while they placed the mold itself on Tokyo.  The paper states:

"Overall, we conclude that the Physarum networks showed characteristics similar to those of the rail network in terms of cost, transport efficiency, and fault tolerance.  However, the Physarum networks self-organized without centralized control or explicit global information by a process of selective reinforcement of preferred routes and simultaneous removal of redundant connections."

Open publication - Free publishing - More network

Power's Impact on Behavior

For CPG companies such as P&G and Unilever, whose shopper is mostly a woman, the concept of empowerment to purchase for the household is an important topic.  Also, retailers large and small look at the buying "power" of the geo- and demo- graphics to price in their locale, for example.  So, what is the impact of "power" on the individual.

Here are a few strategic insights from the work of Adam Galinsky, Kellogg School of Management at Northwestern University (details here) and Joris Lammers, Tilburg University (details here) in their work "Illegitimacy Moderates the Effects of Power on Approach", download here.

"“Power activates a person’s behavioral approach system and underlies our motivation to act, while powerlessness activates our behavioral inhibition system to restrict action and risk-taking,” said Galinsky.

“But, in illegitimate power scenarios, the powerless are more likely to act without direction in an attempt to change the situation, and the powerful may inhibit their actions for fear of losing their undeserved seat at the top.”"

Another study from them published in the Psychological Science here, "Power Increases Hypocrisy, Moralizing in Reasoning, Immorality in Behavior" sheds light on a few interesting conclusions.  Following are excerpts from a review in the Economist:

"...powerful people who have been caught out often show little sign of contrition. It is not just that they abuse the system; they also seem to feel entitled to abuse it."

Dr. Lammers and Dr. Galinsky introduce a new term "hypercrisy":

"...an intriguing characteristic emerged among participants in high-power states who felt they did not deserve their elevated positions. These people showed a similar tendency to that found in low-power individuals—to be harsh on themselves and less harsh on others—but the effect was considerably more dramatic. They felt that others warranted a lenient 6.0 on the morality scale when stealing a bike but assigned a highly immoral 3.9 if they took it themselves."

The research linked above and the Economist's conclusion paint a bleak picture though:

"Perhaps the lesson, then, is that corruption and hypocrisy are the price that societies pay for being led by alpha males (and, in some cases, alpha females). The alternative, though cleaner, is leadership by wimps."

Publishing and Piracy

From the Financial Times article "Publishers fear threat of digital piracy as sales of e-books grow" here:

"Tom Weldon, deputy chief executive of Penguin (part of Pearson, which owns the Financial Times), said: “The only way to fight piracy is to publish digital content across as many formats as possible, through as many channels, at a fair price. If we go for exclusive or proprietary formats, we’re completely screwed.”

At the same event, Shriti Vadera, who helped negotiate the UK government’s last anti-piracy deal with record companies and internet service providers, said the book industry was way ahead of the record companies, which “didn’t see [the piracy threat] because they weren’t listening to their consumer”."

Africa - Business Growth, New Consumers

Boston Consulting Group recently published a thought provoking report "The African Challengers: Global Competitors Emerge from the Overlooked Continent".  The report calls the perspective that a continent with only 4% of the world's GDP is "out of date".  The report states:

"Between 2000 and 2008, Africa's annual GDP grew by 5.3% (adjusted for PPP), compared with 4% globally.  The rise in commodity prices partly explains this performance, but exports and local demand also played strong roles."

As always, the BCG report is thorough, with explanation and data to back up claims, and visuals and graphs to explain the information.  Download the complete report here.

List of the top global challengers according to the report:

This growth has the affect of opening up the markets for imports of consumer goods, and new services as the shopper/consumer strength grows with the PPP.  Exciting times!  And with the FIFA World Cup 2010 providing a showcase opportunity, BCG's timing is apropos and perhaps African markets are moving from Frontier to Emerging.

Consumer Behavior and Pricing

I was first educated on the art of pricing by a good friend Mr. Dennis J. Crane of the Business Navigation Group, details here.  Thanks Dennis!

A recent and an excellent report from UK's Office of Fair Trading, "The impact of price frames on consumer decision making" here, defines the various pricing strategies of retailers into price frames.  These are:

"A baseline treatment in which consumers see straight per-unit prices.

Drip pricing where the consumers see only part of the full price up front and price increments are dripped through the buying process.

Sales in which a sale price is given and a pre-sale price is also given as a reference to the consumer, 'was £2 is now £1' (actual pricesare identical to the baseline treatment).

Complex pricing where the unit price requires some computations, '3 for the price of 2'.

Baiting in which sellers may promote a special price but there is only a limited number of goods actually available at that price.

Time limited offers where the special price is only available for a pre-defined short period of time."

The report is extensive in its details on the process used.  Tabular formats break down the complexity of the analysis and the results.  Couple of key conclusions from the report are:

"The evidence from the controlled experiment shows that, in contrast to the predictions of standard economic theory, price frames do matter for consumer decision making and welfare. Consumers make more mistakes and achieve lower consumer welfare under the price frames we investigate as compared to straight unit pricing (the baseline)."

"The ranking of the price frames, starting with the worst – that which causes the greatest welfare loss - is as follows:
(1) drip pricing
(2) time limited offers
(3) baiting
(4) sales, and
(5) complex pricing."

If you are interested in a quick review of the report, please see the Economist article "You've been framed" here.  The Economist concludes that:

"Although consumers clearly lost out there were no corresponding overall gains for retailers. Sales volumes were virtually the same whichever way prices were presented. The main effect was on the distribution of sales. The first shop to lure shoppers sold many more goods, as consumers grabbed at poor deals. That made some firms better off but others (which would have offered better deals) were worse off. Most price frames made for lousy matches between shoppers and retailers, a bad result all around."

Do the manufacturers become the winners in the end?  Should manufacturers remain with the business they know?  Is a combination of an organization that is a manufacturer and a retailer work best?  That is, WalMart, Tesco, etc. with private labels or P&G with its eStore.  Questions abound, experiments continue...