One of the things that my Dad always took pride in his own business for was that he offered his employees an above average salary for any given position. However, not all small businesses (my Dad’s is categorized as a “medium-large”) has the working capital to offer this benefit to employees. If you have been watching the news the past week, you will have heard a great deal about President Obama’s plan to raise the wage floor from $7.25 and the salary the salary floor to around $984 a week, as was recommended by the Economic Policy Institute. The valid concern is that those who are making $455 a week, or $12 an hour, are not eligible for overtime pay…meaning that  family of 4 on a single income basis would be living below the poverty line. While I understand this claim, it is not feasible to think that all companies can support increases in both minimum wage and overtime payout, which is the position I will be taking in this weeks post.

Judging by the amount of support there is for the increased minimum wage, I think it is fair to say that we will see a dramatic change in the next year or so regarding our federal wage standards. This in turn will have a negative effect on small business because not only does it increase costs, which forces them to hire less employees, but because it it will eventually dissuade workers from putting in an honest days work.

While it may seem logical that an increased in payout to employees would improve productivity, most studies show that this trend will typically only last for 2-3 weeks (citation Dave Brown’s Econ Class). An article in last Wednesday’s Wall Street Journal tells the story of the owner and CEO of Bell ATM service Inc, Emo Pentermann. Emo worries that “making more people for overtime pay could remove the inherent incentive for lower-level managers to hustle to earn a promotion. Essentially, there is more of an incentive now more than ever to take more time than is necessary for basically all employees in the service industry.

It is the pleas from Emo and some other notable businessmen that eventually forced the National Federation of Independent Businesses to get involved, who will fight Obama’s proposal with vigor. This is not only because of the productivity worries of small business, but the sheer logical of the issue. That being that Small business cannot afford to pay their employees anymore than they already do. An important thing to understand with this issue is that almost all employees desire to on salary, not hourly wages. This offers more stability and flexibility in their working schedules. When employers are forced to pay more than they can afford to employees on salary who are eligible for overtime, they will undoubtedly adjust their hiring strategy to include more hourly positions so that they can shift the employee’s schedules around in a way that prevents them from qualifying for overtimes (any time worked over 40 hours a week.)

With the increased minimum wage debate underway as well as the implementation to healthcare, both of which increase costs for employers, I do not see how the President will be able to justify an indirect addition to small businesses. There has been so many dramatic changes to corporate policy in the last few years that it has become difficult for businesses to keep up with all the changes which makes them susceptible to legal infractions. I think the best thing to do here would be to let our business owners and managers to catch their breath for a little while.

Last post of the year!

Apple is the undisputed king of the technology industry and has totally revolutionized the tech industry in terms of building a solid foundation for future innovation as well as consumer expectations. These innovations range anywhere from the “slide to unlock screen” to the mapping system, both of which have come a great cost to Apple. The company spent $4.5 billion in 2013 alone on research and development whereas its competitors such as Samsung spent just south of $2.75 billion so it is easy to see why Apple would cry foul when they identified 5 unique possible patent infringement on the part of Samsung. The plaintiff, Apple, urges that a clearer line be drawn between competitive intelligence and just plain copying.

Looking at a few summaries of the first few days in court (as I can imagine it will be sometime before we hear a final verdict) it is difficult to identify not only how the case is going to end up, but what the case is rally even about. Apple is suing Samsung, the defendant, for the infringement of patents and is looking to collect $40 per smartphone sale made with their patented technology as punitive damage. With Samsung selling 37 million of these phones and sales still being made during the trial, Apple is looking to collect around $1.5 billion by the end of the suit. Another thing worth noting is that in 2012, Jurors had already found Samsung guilty of patent infringement which resulted in a final settlement of $930 million being paid to Apple for damages lost in sales. Seeing as it is the same location, same attorneys and same judge as the previous case, Apple is looking to replicate similar outcomes as was seen two year ago. Samsung tells a much difference story and with new evidence and realizations, it is possible they actually stand a chance.

To Samsung, the lawsuit seems to be just another attempt by Apple to limit consumer choice by eliminating one of its largest competitors. A key point in the case so far for Samsung’s attorneys had been the presentation of an Apple internal memo that essentially declared war on Google which produces the software “Android” used in Samsung phones. Furthermore, Samsung felt that Apple was giving itself more credit for sales than it deserved and that the 5 features that were copied were not a determining factor in sales. Samsung produced surveys that it conducted long ago that seem to be free of biases that concluded that none of the features mentioned by Apple were important to consumers. In other words, the phone would sell without the features.

Regardless of the final verdict, this case will play a major role in the future of the technology industry for both competitors and establish a precedent for future cases that draws a clear line between copying and strategic competition.

Anyone who took a U.S. history class will remember the trust busting that occurred in the early 20th century will remember discussing the monopolistic tactics of Rockefeller and Vanderbilt. A series of anti-trust legislation in the 20th century would ultimately put an end to this traditional sense of trust or monopolization. However, since those early days it has become increasingly more acceptable for business to operate around anti-trust legislation by cooperating with other business at varying processes of production, this is what is commonly referred to as collusion. Just last week, Brazil’s cartel office, which’s primary purpose is to identify and punish trust, launched a probe into the construction of a$4 billion train system involving over 15 contracts. Because all 15 of the private firms who were granted contracts did not compete in the marketplace, they were able to set and freeze prices so that each could drive up the price of the project itself. Some estimates of the Brazilian train system say that the contractors had nearly doubled the cost of manufacturing by doing so.

What our Justice Department and other regulatory agencies need to realize is that cartels still play a major factor in today’s marketplace. It is their failure to recognize that such fraudulent business practices exist that the punishments, in terms of fines, still aren’t enough to create a disincentive for companies to engage in these practices companies. When firms agree to freeze prices, it means that no matter what, the value that the consumer would normally pay is going to by higher than it typically would had the business never colluded. Many people, i see this (and other white-collar crimes) as a victimless crime because each consumer is only hurt a little, which is why we only see fines for companies that are caught red-handed. Since the 1990’s fines have increased significantly, almost 10 times on average for similar offenses as they were in the earlier half of the century. So clearly there are some improvements being made.

The initiative to destroy these cartels has come from trade commissions and regulatory agencies worldwide in the last decade. One of their best strategies has been to create incentives for companies that believe that they are going to be caught for regulatory fraudulence, an incentive to snitch out others involved in their collusive relationship or even other competitors if they catch wind of it. However, the problem becomes that sometimes, the incentive to cheat is much greater than the incentive that can be provided not to and from a financial standpoint alone, it seems that taking the risk of price-fixing or manipulating may provide for fiscal benefits.

I vaguely recollect when Pandora first came out for smartphones and I didn’t really think too much of it. It wasn’t until a few months after, 3 years ago now, that I watched an interview on the Colbert Report of the Pandora founder who explained the how Pandora streamed free content to listeners, which was free at the time. However, in recent years Pandora has made more of an effort to earn revenue for its services, offering advertising space to other firms and a premium membership with an array of benefits. Initially record executives and musicians combated the indefinite changes in the industry because they felt that they were not being fairly compensated. Lets be honest, I am sure all of you downloaded just as much free music as me when we were younger (do you remember Limewire?!) When we would do this we are taking money away from artists and relatively powerful record executives. There was a time when the music industry took a major hit when people stopped buying CD’s and the best option was to download music online for free, It was estimated by the Recording Industries Association of America that an estimate of $7.7 billion was illegally downloaded the year Napster came out in 1999. Another interesting statistic provided was that between 2004 and 2009, 30 billion songs were illegaly downloaded. This is rather comically explained in an episode of South Parke (Its only a clip, not the full episode.)  Listening to free streaming online provided by Pandora or Spotify has proven to be a reasonable, and more convenient substitute for over 30 million listeners, regardless of limited advertisement. So rather than combating indefinite change, the music industry has decided to make the most of it, some firms have invest more than $5 billion in online streaming advances.  In the last few years however, as CD and Vinyl sales fell and Online streaming membership grew significantly, some big name executives and musicians have come to support online streaming because as it turns out, online streaming, regardless of the revenue it generates for record companies, is going to save the industry. While a portion of this has to do with music fans switching from older technologies to streaming, it also has to do with the increased accessibility and affordability.

Some of you may have seen the commercial that begins “The 80s called, they want their store back.” (If you haven’t here is the link) Radioshack, a store that specializes in electronics merchandise, has struggled to find its share of the marketplace with stores like Best Buy and Target really cutting into their profit. While the commercial projects a revamped Radioshack, the numbers tell a different tale. Their sales fell by more than 20%, $935 million, this past fiscal year and their debt increased to $835 million, it does not take a financier to tell that the future of Radioshack is very grave. The company has a few fundamental, and easily identifiable, problems

I have always gone to Radioshack for odds and ends because that is where my grandpa went when we were working on hobby projects or on electronics around the house, leading me to problem #1 with the company. Radioshack was established in 1921 to provide supplies to Radio Officers on ships, and has only undergone 3 major re-imaging campaigns since then. Significantly less than for example, Target, that does so every 2 years. The people who shop at Radioshack or think of it as their primary electronics destination,  are aging. Something that they even poke fun at themselves about in their own commercial, full of characters that only our grandparents, parents, and the most retro of our generation would recognize. So when we look at the Capital at hand, and the massive tasks that needs to be accomplished, Radioshack has become obsolete not only due to a shift in consumer tastes and preferences, but for a much more obvious and inevitable, lack of financing. To tie it all together, the lack of financing prevents them from revamping at a large scale, and the lack of revamping is what turns off investors.

What really drew my attention to this topic was when I went hometown of Gettysburg this past weekend for the first time since winter break and saw that 2 of the Radioshacks were having going out of business sales and the other was indefinitely closed. It turns out that Radioshack will be closing 1/5 of its stores, or what is just over 1,000 stores, leaving 6,000 jobless. This was determined as a viable strategy for the CEO who clearly want to “trim the fat” by eliminating under performing stores, which was undoubtedly a difficult, but effective decision, when assessing the economic climate.

With all of this in mind, it is important for me to note that Radioshack is not the only company that is taking major hits this year. Even Target, which I had mentioned earlier, and Amazon had disappointing sales years. However, these company can and have been able to afford a few bad quarters, and have not made a habit of it as Radioshack has.  The current state of the economy and the exponentially worsening financial situation are what will ultimately put in the final nail in the coffin for this foremerly unmatched retailer.

The Tesla Model S: Efficiency comes at a Price

If any of you follow the stock market, then you probably understand what prompted me to choose Tesla for this post’s topic. Tesla, a car manufacturer that is just over a decade old. The company plans to double cars sales from 22,000 last year to over 50,000 by the end of 2014, an ambitious goals, but certainly not impossible. Within the last two week, the value of Tesla stock (TSLA) has increased by more than 20%, or $50 in just two weeks. There are a number of reasons that are contributing to traders interest in what is clearly an up-and-coming business. The main reason being that it plans open a factory here in America that will specialize in a new lithium-ion battery pack that will make their already amazingly efficient battery (310 miles on one charge) more Eco-friendly. Some even speculate that these new batteries may be available for Consumer for other uses. It appears that things are very much looking up for the young company and here are a two reasons why…

The first reason being besides a growing demand, is their location. Tesla operates out of Silicon valley , the home of many tech start-ups including Apple. With the construction of a new factory underway, it has caught the attention of other companies in the area. Gear heads and techies alike both predict that the famed “iCar” and Google’s Driverless Car will be here before we know it. For those of you that don’t know, the autonomous motoring vehicle has been a long time coming and while neither Apple or Google have said exactly when they will have perfected the technology, most assume it is functionally prepared and is really just waiting for federal approval, as well as patents. It is Tesla’s hope that when either Google or Apple, really whoever perfects it first, will choose a Car platform for what will inherently be a revolutionary discovery will be a company with similar values, easy communication and can be produced with minimal transit costs.

One of the complaints about Tesla is the price tag, which is a fair complaint as the Model S goes for upwards of $64,000. Considering the amount saved on gas, it may be worth the investment to some. The Found of Tesla does not deny this reality of the countries current economic standing and plans to launch a $35,000 family SUV in the next 3 years that will be able to travel 400 miles on a single charge.

It will  be sometime before the traditional petroleum fueled car is replaced by the electric cars that Tesla manufacture. However, with new markets on the surge such as the autonomous motoring vehicles that Google and Apple have been researching or the shift in tastes (consumers are willing to pay more for environmentally friendly credentials), it is easy to see why Tesla has set such high goals for itself.

When entrepreneurs and venture capitalists establish the general ideas of what service or good they will be providing and the structure of their company that they’ve decided to go with, the next question that they must seriously consider is where they will go. Here in the United States, we are ranked as one of the best nations in the world to start a business and maintain one which can be seen in our ranking as 17^th in the world on the Index of Economic Freedom. This is mostly due to tax advantages and other incentives that our representatives in congress have implemented in recent years in order to spur employment, but that is a story for another day. However, there is a lot more to think about than just tax-breaks received here in the U.S. With an ever increasing global economy and enhanced synergy, companies are able to access to more options that will ultimately effect the success of their business and profit. Examples of this include, but are not limited to, costs of labor (the relatively cheap labor companies access in East Asia), laws (intellectual property rights that are lacking in China), and transportation (basic logistics).

What really got me thinking about this was an article that I read a few weeks ago about Fiat. Now that the company has purchased Chrysler, it will be moving a majority of its production to the U.S. where production will be much cheaper in the long for the company when dealing with weak Labor Unions. Additionally, Fiat will move its legal domicile to Netherlands where corporate laws are extremely weak (many refer to The Netherlands as Europe’s Delaware, this meaning that Fiat will have almost no legal, production, or tax ties to Italy, its former corporate residence. Netherlands allows a lot of leniency regarding the compensation of executives, management of stockholder’s equity and rarely audits the companies that operate out of the country. This is an attractive feature to the company because it can basically operate in the best interest of the firms, without thee consideration of the general public which is monitored and regulated here in the U.S. by the FASB and SEC. Furthermore, the tax residence of Fiat is in Britain, this is because Britain doesn’t have a large fee for companies that are frequently moving highly liquid assets between international subsidiaries as most countries do in the terms of “tax bills” and also has a lower than average tax on offshore subsidiaries, i.e. Chrysler-owned Fiat.

Rationally, it makes sense for these companies to take advantage of the business opportunities given to them if they have the means to do so successfully. Fiat, a company that is really just getting back on its feet after two decades of stagnation, should take any measures necessary to ensure their long-term prosperity. This brings another question to mind, is all of this ethical or fair? I can’t say that I can support Fiat’s abandonment of factories and their employees at home in Italy, taking advantage of shareholders in the Netherlands, or avoiding paying taxes that all other companies are subject to. It is these practices that has lead the EU to crack down on businesses that are splitting their legal, productive, and taxes residences; and for a company that is just getting back in the game, the last place they want to be the center of an investigation.

CNN is striving to make major changes in an effort to improve ratings and increase viewers

Most people never give the actual business of news corporations a whole lot of thought. It probably has a great deal to do with the fact that CNN, Fox, Bloomberg, and other large and recognizable sources never report on their own finances. Jeff Zucker, who is the President of CNN has given the business and future of his company a great deal of thought. He has made public statements about moving forward with viewer expectations. However, this motivation and abandonment of the news and reporting may not be in the best interest of society as a whole.

Zucker has even gone as far to purchase the rights of a movie about Paleontologist digging up a T-Rex in this new initiative to provide more entertaining television. While I understand the importance of educational t.v. which can be undoubtedly found on these stations, I would also advise that the news stations report the news and avoid the kind of shows that are very quickly becoming saturated. The news should report the news and leave other cable networks to handle the entertaining shows that viewers want. I do not feel that providing t.v. shows that are easily found on channels that specialize in documentaries such as the History Channel or Discovery is going to help CNN as a business out in any way.

This is one of the times in business where the president and board of CNN has to take a step back and look at ethics.  In 2014, CNNs plan is to provide at least one and half hours of entertaining television (which I would not categorize news in) or documentaries a day. This is mostly a combative tactic to some of the t.v. shows that FOX News provides, and FOX nearly doubles the viewership of CNN. The reason that I watch CNN, even though I don’t necessarily agree with everything I hear on there, is because I can get the News I want to hear without being interrupted every half hour by 3 hours of mindless slap-knee humor. I would advise that CNN sticks to their guns and does not sacrifice one their only differentiating and redemptive characteristics that they have in the marketplace.

To provide my new Cas section some background, I started this blog last semester as an advisory to other students who may be interested in starting up their own businesses and asking themselves to take a hard look at themselves and do what it takes, needless to say, the idea was drained by the end of the 2nd month. My plan for this semester is to comment on recent business trends and hop topics with a social context, so you will be seeing blog topics going from market trends to new products to general business practices. Business is something I am passionate about because it can be a ways of advancing society as a whole, optimizing functionality and finances, and even providing philanthropic services in an nontraditional sense. All things of which I hope to touch upon at some point in this blog over the semester.

Walmart has been in the news recently for the hiring of its new CEO, Dough McMillon. This will have a larger impact on consumers than what you would think in terms of how and where we shop. In recent years Walmart has becomes obsolete. With falling stocks, depleting market shares, bad press, new competitors, and a whole new generation of consumers with tastes that not even a Super center can satisfy things are looking bad for the international conglomerate. McMillon is going to have to deal with issues that none of his predecessors did, which is shrinking, not expanding their business. The cost of having 2.2 million employees globally can be pricey and continued expansion internationally has really not gone that well for the company. While the internal management issues are one thing, the social issues are a whole other monster.

Some of you may remember in 2012 when Walmart falsely disciplined and fired employees for striking as was their legal right guaranteed by the NLRB. To many, including myself, the main reason I stopped shopping there was because Walmart has THE worst employee satisfaction ratings of any publicly traded company. One thing that I think has really hurt them both here in the U.S., and internationally (Where labor laws tend to be much stricter) is the image they’ve established for themselves through instances like the one in 2012 as an aggressive company that does not want to be challenged.

Ideally, Walmart would look to cut costs where needed and try to reconstruct its image, potentially taking a hard look at its approach to organized labor. Sometimes it is easy to be blinded by money and forget how crucial employee’s satisfaction, and adjusting to even the slightest of consumer trends can be to the success of a business.

Over the semester I’ve been trying to give you ideas and things to consider if you ever were to decide that you wanted to start your own business. I think I have covered as much of that as possible and then some. My last post of the semester is going to focus on what to do when you finally have your shot, particularly, how not to blow it. With the level of immediacy that exists in today’s society as result of new communicative technology, it obvious as to why small start-ups can grow so quickly and fail just as fast. One good review can really give business a bump. So the question is, do you play it safe and make gradual gains or go big and expand operations?

The first thing that most businesses do is look over every aspect of their business and decide if they can recreate the quality of the goods or services at a larger scale. Sometimes firms misinterpret their assets and decide that it would be possible for a replication. One of the examples I found in my reading was a restaurant that received the “Restaurant of the Year” Awards from the Portland Oregonian. Immediately they tried to open more restaurants and eventually the large expenses forced them to shut down. I think that it is very interesting how much value we place on tangible assets when there is so much more to Business. The intangible assets that really make a business or any project’s success relies heavily on how easily we can access knowledge or what is known in the business world as “Knowledge management.” Making sure that there are ways for different subsidiaries is going to be extremely helpful if a business decides to expand and no amount of money or other assets can be substituted for it.

The first way you can mess up your shot is to overvalue your assets and not recognize the things that help you succeed that are very difficult to measure. This problem exists everywhere in society. We as human beings tend to become so focused on one of the many tools that can help us succeed that we forget about the other factors that must be present to do so. This bias to focus on just one positive, and ignore all of the negatives due to overvaluation can be detrimental to the success of any business or project. Is there anywhere in society that you see such a problem existing? Why is it that we consciously ignore many negatives when presented with just one big positive?