Growth in short-term rentals shapes the broader real estate market

October 10, 2014 by Xinyi Huang Leave a Comment

A former co-founder of a travel management company, Greg Mayben in 2013 co-founded SkyCorporate – a corporate short-term rental company based in Los Angeles Downtown – with his partner Temil Marmon who was an experienced realtor. And he called this company a product of “marriage” between traditional real estate industry and traditional hospitality services.

Six years before founding SkyCorporate, Marmon owned a 22-unit apartment building and signed 12-month leases to tenants in one business district of New Mexico, where few local people tended to live or extend leases. So he started looking for a change. Almost at the same time, Mayben, had spent 25 years in travel services, started looking for a challenge.

“I mean real estate is very fragmented. That reminds me of travel service was three decades ago,” Mayben said. “I saw it’s getting ready for change. I don’t really want to be a part of the old-school business model, which is typically brokerage, whether it’s commercial or residential.”

[Read more…]

Lawsuit Against Sriracha: Affliction or Blessing in Disguise?

October 10, 2014 by Jingyi Wang Leave a Comment

It was 9:40 on Saturday morning, visiting cars had filled up the parking lot of Huy Fong Foods, Inc. in Irwindale, California. Several golf cars worked continuously to pick up people from their parking spot and drop them at the entrance of the magnificent factory.

“Good morning, please register here and wear the cap,” a staff handed a red disposable bouffant cap to every visitor in line, wrapped in which are a Tour Guide, a ticket for Sriracha flavor ice cream and a ticket for a 9-once bottle of Sriracha Hot Chili Sauce and a free T-shirt.

Every Saturday since August 22nd, Huy Fong Foods, Inc. expects over 1000 visitors to the Open House event. On September 27th, there were over 1,500 people flooded to the factory. “We didn’t have so many visitors even at the first Open House,” said David Tran, the CEO and Founder of Huy Fong. From 10 a.m. till afternoon, the 70-year-old millionaire would wait outside the entrance to greet every visitor with smile and make pose for photos.

David used to be very cautious about the secrecy of his processing lines, but now visitors can see the whole procedure of making the iconic Sriracha hot chili sauce. From chili grinding, ingredients mixing, to bottle making, filling and the eventual packaging, visitors can not only stand by the processing line to take selfies, but also talk to the workers and get to know more about the procedure.

The tour is free, but it brings extra revenue to the company. When all the visitors had left, David got reported that for September 27th they earned over 6,000 dollars for selling souvenirs in their gift shop, the Rooster Room. Neither for branding nor for higher sales, David confessed opening the door to public is his “last resort to run the business” at current location.

Started in 1980, Huy Fong Foods, Inc. has been making hot sauce for 33 years. Their signature product, Sriracha hot chili sauce, was named as the “ingredient of the year” by Bon Appetit magazine in 2010 and has a huge foodie fan base nationally and internationally. But the company was not known by many people. In February, 2013, Huy Fong moved to a 650,000 square-foot brand new factory in Irwindale, hoping to begin a new page of business. But later that year, the Irwindale city filed a lawsuit against Huy Fong Foods, Inc. claiming strong odors emit from the factory have affecting residents’ lives and threatening to close the factory.

In an email from Irwindale Council Member H Manuel Ortiz sent to other council members on Oct 10,2013, Ortiz writes: “I just received notice that the ordr at this place is very strong. We must proceed with SHUT DOWN immediately. Remember they have another 10 to 12 weeks of full operation, how can the affected residents put up with this health problem.”

David recalled that among the 60 to 70 complaints, several indicate residents can smell the spicy order on Sunday morning, when his factory is not working at all. A little bird told David that someone was shooting pepper guns in front of some residents’ home and try to put the blame on Huy Fong.

The Irwindale city used to greet Huy Fong with warm welcome event, being considered as an example of business-friendly government by California Community Redevelopment Association and the Los Angeles Business Journal. But several months later, the government tried hard to shut down his factory without any sound proof that the odor comes from Huy Fong. What’s worse, David said the city also delayed the license for his new factory with no reasonable explanations.

In April 2014, Irwindale City Council voted unanimously to declare the spicy smell of Sriracha hot sauce production a public nuisance. At the public hearing, David was so furious that he shot at the city council members with his poor English that ” You have no brains. Your noses have problems,” he recalled. But eventually David cooperatively worked with South Coast Air Quality Management District to improve the placement and effectiveness of odor control filters.

The city holding its right to install the improved equipment itself if the order issue didn’t get better within 90 days, for David, is a dormant volcano, which can erupt at any time especially during the chili grinding season during June to November. “If they wait to install the equipment until the harvest season, I have to stop all my operations and the pepper will be wasted. I will go bankrupt,” David said.

David is highly suspicious that some scheme may be behind the whole dispute. Concluding from the sudden turn of city government’s attitude and all the troubles he has faced in the recent two years, he said maybe Sriracha’s growing demand has threatened other big companies’ market share, so they want to take me down and take away my business.

“(Huy Fong) is my second wife, my lover. I can’t love it enough. How can I share it to others?” said David. To save his business, David finally decided to open the door to public, and prove that “no tear gas” is produced in his factory.

David sent 30 VIP invitation to Irwindale city to invite all the complaints to his factory and check the odor themselves. But none of them had showed up so far. Oppositely, until September 27th, there has been over 10,000 people outside Irwindale, the city with around 1,400 residents, attended the Open House and their feedback were all positive.

“My business runs smoothly for 33 years, but last year it had a lot of problems. I got great pressure,” the usually calm and smiling businessman sighed while confessing his true feelings.

During the past 33 years, David worked hard to improve the quality of his products while keeping the price low. When he started the business, a 28-ounce bottle of Sriracha was sold at $2, but now it’s $1.75.

But the dispute ironically brought Huy Fong Foods, Inc. into the spotlight. The demand for Sriracha increased drastically. David said last year the sales of his products increased for 20% and it continues to grow.

Adidas is down for the count

October 10, 2014 by Sean Burch Leave a Comment

Adidas is headed in the wrong direction

In a small, rain-soaked town in northern Bavaria, a German company is trying to design athletic apparel and footwear that will appeal to the masses in America. And they’re failing miserably.

Adidas, the world’s second largest sportswear company in the world, has a problem: the American consumer doesn’t think they’re “cool.”

“At the moment, Nike is cool, very cool,” said Tammy Smulders, head of marketing consultancy at SCB Partners, to Reuters. “If you ask a 20-year-old, they are not going to pick Adidas right now.”

Part of this is due to the disconnect between their headquarters in Herzogenaurach, Germany, and the US market. Analysts and even the company itself have acknowledged the difficulty in recruiting top design and marketing talent to live in a German farm town with a population of less than 25,000 people.

Being based in Bavaria has left Adidas out of the loop with US consumers

Their products, while functionally sound, have recently lacked the style and marketing necessary to permeate the American market.

Nike, on the other hand, has been more willing to push the envelope. A recent illustration is their introduction of neon-yellow shoes for their athletes at the 2012 London games, a bright color scheme that has become a staple over the past two years.

The Swoosh has also introduced several well-received footwear innovations in recent years. Flywire, Hyperfuse, and Flyknit technologies, for example, have been hits with the US consumer because they are both stylish and practical.

“[Nike] understands the US consumer. Adidas does not,” said Matt Powell, head of Forbes’ Sneakernomics blog.

But Powell doesn’t believe the disparity between the companies is due to technological innovations, but rather their ability to market them.

“Adidas has a very credible technology in Boost [a new shock absorbing system],” said Powell. “They just have not exploited it here.”

Footwear expert Matt Powell believes Adidas has the tech to compete — they’re just not promoting it right

It certainly hasn’t helped that the North American faces of Adidas have been trending downward.

After signing a 13-year, $185 million extension with Adidas in 2012, Chicago Bulls guard Derrick Rose has dealt with a myriad of leg injuries that have kept him off the court for nearly two full seasons. While his $40 million in signature sales ranks fourth overall among athlete-endorsed basketball sneakers, it’s difficult to make a shoe look good when the lead endorser is wearing a suit on the bench.

Adidas’ other top endorser in North America, Rockets center Dwight Howard, has faired even worse. His line only moved a paltry $5 million in product. Big men generally don’t sell shoes as well as guards to begin with, and Howard’s Q Score, which measures “the familiarity and appeal of celebrities,” has fallen to 13. The average is 16.

Between the location of the company, its inability to market fashionable products, and its pitchmen failing to resonate, it becomes clear why Adidas has lost ground in the States.

Conversely, The fact Nike’s lead endorser, LeBron James, rarely wore his signature shoe and still generated huge returns speaks to the company’s Teflon status. As long as the shoe design appeals to the consumer, they’re willing to look the other way. This speaks to the underlying divide between the companies – that consumers feel Nike inherently makes a better and more desirable product.

The numbers back this up. Combined, Nike and its largest subsidiary, Jordan Brand, account for 60 percent of all US footwear sales, ten times the market share of Adidas. The gap is also substantial in their apparel sales, with the Swoosh enjoying a 30 percent cushion.

Nike is crushing Adidas in US

And with Nike making inroads in Adidas’ home turf of Western Europe, the increasing divide between the world’s two biggest athletic companies has only become more glaring.

Nike’s nearly $28 billion in total sales for 2014 dwarfed their German rival’s most recent sales figures. In 2013, Adidas’ total sales were €14.49, equal to a little more than $18 billion. It represented a 2 percent drop from the year prior.

Adidas is headed in the wrong direction, and they’re looking for answers.

Where does Adidas go from here?

The Trefoil realizes it has to make its brand sexy again, both in America and internationally.

Adidas fears its headquarters in sleepy Bavaria has lead to being out-of-touch with the US market. To assuage this, they poached three of Nike’s top designers last month and pegged them to open a new design studio in Brooklyn this winter.

They’re also looking beyond athletes to help make an impact on the American market. Collaborations with hip-hop artists such as Big Sean, ASAP Rocky, and Snoop Dogg have been geared towards drawing the younger demographic back into the fold.

Adidas has also partnered with fashion designers Jeremy Scott and Raf Simmons in an effort to target the high-end casual shoe market, where products can run for several hundred dollars.

These moves point to a concerted effort from Adidas to reposition itself as a company that not only see itself as a sportswear brand, but a lifestyle brand.

Still, Adidas has a ways to go before catching Nike on this front, where the Swoosh has benefited from having artists turn up online wearing their performance and casual wear. In essence, celebrity is just as important as athlete product endorsement.

“[hip-hop artist] Wale wearing a pair of Durant’s is just as important as [Durant] wearing a pair Durant’s,” said Ian Stonebrook, writer for NiceKicks.com. His weekly “Celebrity Sneaker Stalker” column routinely ranks as the most-viewed page on their website.

Signing Kanye West to a design deal may be the biggest indicator Adidas has caught on to this phenomenon. West had previously designed two popular shoes for Nike – the Air Yeezy – but was upset over his compensation.

Adidas hopes the coup will cut into Nike’s stranglehold on cool.

“[Kanye’s] influence on the market is unmatched…he’s ahead of LeBron” said Stonebrook. “This could be the biggest move since Jordan.”

Adidas is banking on Kanye West bringing some cache back

And if it isn’t, and their marketing continues to be second-rate, Adidas could see a change in leadership. With shares of ADDYY down more than 30 percent on the year, investors have started to grumble about the performance of CEO Herbert Hainer.

Powell believes this is a necessary move for Adidas to truly become a competitor again in North America. “The US must become design and product center for the brand,” said Powell. “Current management does not see that.”

It’s become apparent the latest maneuvers from Adidas will bring change in one form or another – either in market share or in the boardroom.

California Drought Drying Up the Local Agriculture Business

October 10, 2014 by Seung Hyun Lee Leave a Comment

It’s official: California drought, which began in 2011, has entered a fourth consecutive year of severe drought. Almost 80 percent of California is now in the state of “extreme or exceptional” drought. Low snowpack in the mountains and record high triple-digit temperature heat waves surrounding the state even in the midst of autumn are telling us that coming months will do little to improve the dehydrated state. In drought-stricken California, people engaging in businesses anywhere from breweries to golf are struggling hard to prevent their companies from shutting down by fighting water-shortage. Among all industries however, farming is the probably the most negatively impacted in California—the nation’s biggest agricultural state by value.

Shocking image of cumulative water storage changes in California captured by NASA satellite over the last 12 years.

http://mashable.com/2014/10/03/nasa-satellites-california-drought/

The fact that farmers need water to grow their products is pretty intuitive. However, the state has faced a net water shortage of 1.6 million acre-feet this year, resulting in $810 million loss in crop revenue and $203 million worth of damage in dairy and livestock products. California drought is causing the agricultural business to shrink. The dwindling farming business is negatively affecting the California economy in many ways. The severe and historic drought in California is expected to have a huge financial and economic influence in California’s agricultural sector—and lead to thousands of jobs being cut. To make matters worse, it will also likely to have negative impacts on nation’s food prices and foreign exports.

According to data released by Beacon Economics, exports of California fruits and tree nuts dropped by 8 percent compared to last year and vegetables by 7.8 percent this August. In terms of rice crop, almost 25% of California’s $5 billion will be lost this year due to drought. It is said that 2,500 rice farmers planted just 420,000 acres of high-quality rice used in sushi this year—a significantly lower number than usual. California’s Sacramento Valley produces most of the sushi rice and exports a huge amount of rice countries outside U.S., especially in Asia. According to U.S. Drought Monitor, 58% of California, including all of Central Valley, where a lot of agriculture happens, is currently going through “exceptional drought”, the most severe level of drought. In other words, sushi lovers will either see a spike in the price of sushi or a shorter roll.

Among the biggest losses in California agriculture are almonds, hay, corn and oranges. The state’s dairy farmers are struggling too because there is not even water to grow hay to feed their cows.

Empty docks as a result of severe drought

US_NEWS_ENV-CALIF-DROUGHT_7_LA.jpg

So what are some specific repercussions of California drought? What will happen if the problem does not get resolved?

Overall Economic Loss

The number one result of California’s severe drought is of course the loss of money. From a report from experts at the University of California, Davis commissioned by Department of Food and Agriculture, California is estimated to lose about $2.2 billion this year, and is expected to cut 3.8%, about 17,100 of the state’s agricultural related jobs, most of them consisting of seasonal and part-time work in the Central and San Joaquin Valleys. It is also according to the report that dairy and livestock farmers will be losing about $203 million while pumping cost for more groundwater will cost about $500 million.

Less Employment

Since there is less arable land for farmers to harvest their crops, there is less demand for workers as well. Job cuts are not only limited to farmlands but are also happening in other industries that are closely related to farming. For example, some companies that make farm equipment have begun laying off their workers and downsizing their business since there is now less need for farming equipment in California. Although this is only happening locally as of now, it will soon be a national if drought problem persists. For instance, those who are engaged in agricultural goods export business all around the world will soon be put into predicament as well due to shortage of food.

The job cuts are causing a ripple effect on the local economy. If the problem continues, it will soon cause a ripple effect on national and worldwide economy as well.

Less Export

California is responsible for providing food nationally and internationally. It is known that the state grows about 80% of world’s almonds. The almond trade has become so profitable that Californians began planting almond trees in deserts thanks to the well-equipped irrigation system. Now that farmers in California are strictly restricted from freely watering their plants, many lands that grow almonds are being left fallow this year. This is not only limited to almonds; we are seeing this in other food products as well such as rice and oranges. Although this is not yet a significant problem as of now since California has enough amount of products that are stored, it could soon possibly cause a global crisis if the problem were to persist.

Higher Food Price

This is quite intuitive. Less food production due to drought means there will be less supply chain. Now that there is less food available in the market but equal amount of people competing for that reduced amount, the price of food must go up. This will be especially crippling to poor people who are trying hard to make their ends meet. This will also make people turn to relatively cheaper food, most likely the imported goods from other countries. This will stagnate the local food market and ultimately lead to less active economy and possibly inflation as well due to less consumer confidence.

Groundwater Demand

The average demand for groundwater in California is usually around 40 percent a year, but now it has reached 60 percent. The amount of money put into pumping groundwater costs millions of dollars. To make things worse, pumping groundwater not only depletes the stored water but also makes dangerous conditions for the ground such as huge sinkholes because groundwater is layered in clay and sandstone. If this happens to be the case, the state would have to spend extra money on fixing the land.

Using up groundwater due to drought may solve the problem that is imminent. This is why we are not seeing a huge change in our food prices just yet. However, using up groundwater is not the best idea if we look at this situation in a long term—there is only a limited amount of resource and it will be depleted soon enough if drought continues to happen in the future. The result of depleted groundwater will be devastating, leading to much less harvest and worsened land situation.

As of now, there is nothing we can really do to solve this problem. The dilemma to this drought problem is that the short term solutions that have been implemented to resolve the problem may resolve the current economic problem but it cannot solve the drought problem which can occur over and over again. All we can do as of now is to use less water. We have been too greedy, and surprisingly our greed has come back to haunt us.

Rise of Birth-tourism Industry in America

October 10, 2014 by Meng Lu Leave a Comment

On Oct. 7, Li Zhou and her husband were in Shanghai celebrating the 100th day since their baby boy was born. But the actual birth had taken place 6500 miles away from home, in PIH Health Hospital in Los Angeles.

At the same time, 28-year-old Panpan Li, who was two months pregnant, was nervously waiting for her U.S. tourism visa in Beijing. This soon-to-be Chinese mother hopes to give birth to her baby in Los Angles in 2015.

Sunshine, beach, sea, California has been one the most popular tourist cities in the US for a long time, but now, it’s attracting a different kind of tourist. The U.S. Constitution confers any newborn in this country citizenship of the U.S, and this law makes livable cities like Los Angeles and San Diego the paradise of birth-tourism. Thousands of pregnant women like Zhou and Li flock to America, hoping to bestow their children an unusual gift: the U.S. citizenship.

Los Angeles Chinese consulate is full of new-born-in-America babies and new mothers

Coming all the way from China, many soon-to-be Chinese mothers live in so-called “maternity hotels”, where are temporary homes for preparation of labor, most of which are private residential houses. To give birth in the U.S. is not much more expensive compared with Mainland China, but some expecting moms pay maternity hotels more than $30,000 for 3-month accommodation.

Wei Wei, an assistant in Reding Maternity Hotel located in San Diego, said the service price was from $25,000 to $35,000 for 30-week-stay before labor, based on room type and room size. According to Wei, Reding Maternity Hotel is a two-story villa in a quiet residential community near seaside. It has a courtyard in front and a backyard for pregnant women walking and chatting. Reding is able to accommodate four pregnant women right now, and more customers are expected in its newly renovated branch nearby.

The outside of Reding Maternity Hotel

Expecting mothers find maternity hotels listed on Chinese social media such as Weibo and forums such as Chineseinla.com, and the number of available such hotels is huge just on these forums. No statistics of the exact number, price, or profits of these hotels have been revealed. Yet no one knows how big the market is.

However, Chino Hills City Councilwoman Rossana Mitchell represents a grassroots organization called “Not In Chino Hills,” which seeks to drive out these maternity hotels in their community. She claimed that these hotels were illegal because they located in residential area. Clayton Dube, head of US- China Institute from University of Southern California, said the fact that maternity hotels were commercial businesses limited them to be only allowed in certain commercial zoning areas, which made it illegal if a maternity hotel was just a villa in a residential community. At the same time, the zoning issue leads to another question about whether those maternity hotels pay tax out of their incomes. Most maternity hotels inevitably become tax evaders because they are hidden in residential areas.

Residents in Chino Hills have been complaining about how these businesses disturb their life during the past two years. They said they saw pregnant Chinese women walking down the hill regularly and being taken to tourist destinations by bus now and then. They feared the constant coming and go visitors and cars would increase noise in the community.

Chino Hills residents held up signs that read “Not in Chino Hills” and “No Birth Tourism” at an intersection close to the “maternity hotel.”

Facing all the controversies towards childbirth tourism, however, the trend of US birth-tourism has not stopped. Since the U.S. allows individual tourism visa for Chinese residents less than a decade ago, the number of Chinese visitors is rising. According to Dube, right now, everyday on average 4,000 Chinese come to the United States, and the number is increasing. Most of them are not pregnant, but with the overall increase, birth tourism booms at the same time. Plus, since Hong Kong stops mainland pregnant women from giving birth there, more families in the Mainland are considering coming to the U.S. instead.

For parents travelling 6500 miles to the U.S., they have faith that U.S. citizenship worth this long trip and high cost. To many of them, it’s a lifetime decision planned for years, not just to follow the fashion.

35-year old Xiaoyi Hu and his 31- year-old wife got married two years ago. They made the decision to give birth to their baby in the US even before they got married, and they came to America to do some research on birth-tourism in their honeymoon. Born and raised in Beijing, Hu said Beijing’s living environment had been degrading year to year. “Beijing is not what it was like 10 years ago,” Hu said. Air pollution, expensive housing, inconvenient medical service, and government’s opaque system makes this long-time Beijing resident feel the second thought of the future of his child.

“I just want to give my kid an opportunity for his future. It’s up to my boy whether to come back or just stay in China when he grows up.” In Hu’s mind, he just bought his child a possible alternative, lowering possible barriers for the long run.

The goal of those parents who come all the way to America to give birth is surprisingly consistent- for the better education and life of their children. Panpan Li, who plans to give birth to her baby in Los Angeles is a primary school teacher in Beijing. Even though her child is not due for another eight months, she already is planning everything for the coming child. Li has made two plans. Plan A, she wants to let her child attend kindergarten and primary school in Mainland China, and go back to America from middle school. Plan B, her child will attend American schools from kindergarten with her companion. The latter plan requires her visa status, and she seems ready to be busy for her child for the rest of life. “It’s harmless to have an extra opportunity. Maybe my kid won’t keep the US citizenship in the future. But it is the best I can think of, so if I can, then I’ll do it for my child.” Li said.

To those parents, the expense of birth tourism is probably the cheapest way the bestow their children U.S. citizenship. Xiaoyi Hu thought it was actually a very good deal for the long run. In Hu’s opinion, spending $20,000 to buy a US citizenship is much cheaper and more convenient than applying for immigration in the US in the future. For example, Chinese EB-5 immigration visa required an investment of $500,000 in an American company. Although in EB-5’s case, investors might get back their money several years later, but the amount of “initial funding” is 10 times bigger. As a company’s middle manager in Beijing, Hu thinks he is not rich enough to get his child investment immigration, but a $20,000 worth equivalent investment is something he can give to his son.

As long as it’s still legitimized to obtain a U.S. passport if born in this land, in Hu’s mind, the market is not likely to diminish. Plus, from the U.S. perspective, the chance that the constitution changes the law is highly doubtful.

Clayton Dube also believed the trend of US birth tourism would continue, unless the living condition, education, and many other components progressed in China, which would made it less necessary for parents to pave a better way in another country for their children.

Apple Joining The Phablet Market

October 10, 2014 by Nicholas Wu Leave a Comment

Technology companies have dominated the business world of today through means of innovation and creativity. Technology allows us to make the world a smaller place and connect individuals from different ends of the world. On October 10th 2014, Apple announced their new iPhone 6 and iWatch. The biggest shock to the industry was the drastic increase of the screen size for the new iPhone. Apple had officially entered the phablet, phone/tablet market.

The single product the sky rocketed Apple to the top of the tech industry was its sale of the iPod, an improved version of the Walkman. Making the already invented mobile music playing device much smaller, more user friendly, and look nicer allowed Apple to truly sell a great product. Then Apple announced its first iPhone. The innovative feature of this groundbreaking technology: multitouch screen. In 1992 the IBM Simon was launched as the first touch screen phone but it was not very successful. Apple took that idea, refined and made it look sexy for consumers. In your hand you held the power of the internet with a single swipe of your finger, everyone had to have it. More compatible products were created, Macbook, iMac, iPod Touch, iPad, iCloud, etc. While Apple has established itself as one of the most successful mobile device providers, Google quickly stepped in to introduce its mobile software called Android.

There is unanimous agreement that Android has currently overtaken IOS as the most popular operating system on a mobile device in the U.S. and globally. According to the latest data from Kantar Worldpanel ComTech, “Android now holds 61.9% of the U.S. market share to Apple’s 32.5%.” Internationally, the numbers reflect a similar trend with Android having 82.7%market shares in China and 73.3% in other European countries. However even with this drastic market share difference, Apple has not cared about its dominance in this specific sector for a long time.

Apple still makes more money that all of the Android devices combined. Today, Apple’s biggest competitor is Samsung. Other smartphone companies such as HTC, LG, Motorola, Nokia, and Blackberry are all losing money. Samsung is the only other phone company right now other than Apple that is making money. Even so, Android does not sell more apps and does not generate more ad revenue than Apple. Companies will invest more money in Apple because it provides more real world usage data and Apple has an overwhelming share of smart phones and phablet app sales, web browser use, and ad network units. Additionally, the people who have recently joined the Android family are not Apple’s intended audience. This individuals buy the “junk phones” from companies like LG and HTC that do indeed operate on an Android system, however these individuals would not have bought an iPhone instead. With the dominant market share, Apple still makes more money because its target is the 15% of the top richest population in the world. But how exactly does Apple make money?

Apple sells, phones, computers, music players, but most importantly, it sells an idea: simplicity. Upon turning on the iPhone for the first time, the user quickly understands that to unlock the phone you must swipe your finger to the right. Without any instruction manual or video tutorial, any individual can figure out the basics to how to use an iPhone because the phone is very intuitive. Apple stands for simplicity and automation. Once an individual buys an iPhone, he or she is going to want to buy a Macbook to integrate the two systems, then an iPad for a more mobile form of the Macbook and finally purchase the iCloud to sync all of the data together across all platforms; this is just one person, now imagine a whole household. The wife needs a phone, the kids both need a phone, all of them buys apps on the apps store and to hold everyone’s data on the iCloud you need to buy more space. With one purchase of the iPhone you have now entered the uniform family plan of Apple, simplicity and automation at its best. Not everyone can afford this, but the people that can will buy everything and the newer versions of each product. Apple does not need to reach the 61.9% market share of Android, it only needs to cater to the 15% of the richest people in the world. Apple was king at holding this market down, however in the pas few years, Samsung has invaded with tremendous force and speed into the smartphone market. Samsung is Apple’s biggest competitor.

Samsung has thousands of technology patents and many companies have infringed on then, however they strategically chose not to pursue them in court. If Samsung does infringe on another companies patent and the other company chooses to sue them, the chance of the other company having previously infringed on their patents is fairly high. This exact situation occurred with Apple on patent infringement for multiple devices. Samsung quickly responded and counter sued and the war between the two giant tech companies began. After about a year of war, through trials and appeals, apple won and was awarded $930 million in damages. However, during this war, Samsung managed to take a portion of Apple’s smartphone market share. Samsun started as a fish and product exporting business and later entered the technological space of selling black-and-white televisions. Samnsung has a reputation of selling cheaper knock off brands and inferior products, but many people still bought their products because it was more affordable. Initially the smartphone market was no different.

The first major smartphone that set Samsung apart from other junk phone distributors was the Galaxy S. It first launched in Singapore on June 4 2010 and after the first weekend, Samsung had announced that the Galaxy S had sold out with the exclusive Samsung phone carrier in Singapore. The Galaxy series phone has drastically improved on the past model with each new version. Within the past 2 years, many iPhone users switched over to the Galaxy S4 and S5 simply because it had a bigger screen than the iPhone. Samsung had established itself as the leading player in the phablet market.

Steve Jobs was the face of Apple, he sold the idea of simplicity and automation to the general public. One of the biggest selling points at Steve Job’s key note speech for the first iPhone was the size, “it’s a phone that fits comfortably in your palm at 3.5 inches.” When the iPhone 5 was announced with the specs of a bigger screen, Apple quickly released a short 30 second commercial addressing the issue. Here is the video: https://www.youtube.com/watch?v=d2s7-hTubUU

With the lost of smartphone market share to Samsung, Apple quickly realized that its user were switching over to Samsung for a bigger screen. Regardless of the message of Steve Jobs, they disregarded his message to win back their previous users. The age of the phablet has come and Apple’s transition into a larger screen confirms the change. All of the giant tech companies have entered the phablet market and competition will continue. Google and Apple have also had patent wars in the past but have agreed to drop all cases to focuses on creating better products. With this shift in focus, consumers can expect to see better products coming out in the near future. Apple learned from its war with Samsung that legal battles may result in a monetary gain mandated from the court, however, market share is dictated by how good of a product the companies can create. This is how a free market should be.
In preparation for its phablet unveiling, Apple released a guide on how Android users can easily import their media from their computer into iTunes to switch over to the iPhone 6. http://support.apple.com/kb/HT6407?viewlocale=en_US&locale=en_US

The opinions on preference between the two smartphones are split about evenly. However, interestingly enough, Gazelle, a tech-reviewing site that frequently analyzes the smart phone market, revealed that their trade-ins from the iPhone 6 to the Android tripled in the past week before the iPhone 6 launched.

SuperSaf TV on YouTube sums up the opinions on preference fairly well in his comparison review. He says, “Depends on what your preference is, do you prefer something with expandable storage, removable battery, and water and dust resistant or do you want something that looks and feels that much more premium.” The iPhone is branded as the stylish, sleek, and simple phone that makes your life a lot simpler, while the Galaxy S5 is branded as the highly customizable, more complicated and sophisticated phone that may appeal more to technology savvy individuals. Regardless of the preference between the two phone everyone agrees that the launch of the iPhone 6 has had a global effect. Apple’s dominance as a tech giant has been felt all the way over in China and Taiwan.

China and Taiwan make up the two biggest manufactures of parts for the iPhone 6. When the iPhone C came out, the manufactures in China and Taiwan suffered along side Apple because the price point was originally set too high. The supposedly cheaper and marked down version of the iPhone 5S still performed poorly because they missed the mark on their target demographic. As a result, a lot of parts were manufactured but not many iPhone C’s were bought. Apple learned from its mistakes from the iPhone C and priced the iPhone 6 at $199. China and Taiwan rejoiced because they new the price point was low enough to where the demand would be extremely high and they would be able churn out more products. The biggest company in the two countries that benefits from this is Hon Hai, previous known as FoxCom. While the iPhone is still an American product, if the product is assembled in a country and is then sold in any other country, it is considered an export of that country. The economist from focustaiwan.com projected that “the release of the iPhone 6 could add about 1 percent per month to China’s export growth for the rest of 2014, and boost Taiwan’s by around 2 percent per month from August to October.” Because it is counted as an export for the respective countries, Apple’s iPhone will help stimulate the GDP’s of both countries through the well known equation C + I + G + XN = GDP. Surprisingly however, the iPhone 6 is not actually the most popular smart phone in China. This buying chart from Wall Street Journal compares the iPhone to other phablets that are currently in the market.

The competition between all of these tech giants does not stop at smartphones. The next frontier of personalized technology is wearables. The Apple Watch was announced alongside the iPhone 6 and iPhone 6 Plus marking Apple’s official entrance into the already tough market of smart watches. Google and Samsung have already attempted to tap into this new market but no one has done well. The biggest issue for smart watches is necessity. Misha Pollack, a tech reviewer on YouTube, argues that there is no reason for me to check a text message on my wrist when I can pull my phone out using the same amount of effort. The smart watches do not have a killer app, or a program/functionality that makes buying the product a necessity. Apple announced with its reveal of the Apple Watch that it is exploring the sector of health monitoring technologies; this includes heart rate, glucose levels, and a multitude of other health indicators. Quickly following this announcement, Google also announced its excitement in exploring this aspect of new technology.

Even with the dominating market share of Android as the preferred mobile operating system, Apple still walks out with the money. Having lost some of the smartphone market share from its battle with Samsung, the launch of the iPhone 6 was seen as Apple’s first strike in the new age of the phablet.

Chinese EB-5: the chance, the risk, and the unstoppable investment flow

October 10, 2014 by Peiwen Jing Leave a Comment

Sitting in a modest dining room of a cozy house suburban in Irvine, California, Michael Kwok looked worried while typing his personal information to book a ticket from Los Angeles to Guangzhou, China.

This 67-year-old emigrated from Hong Kong to the United States four decades ago. This time his visiting China, however, was not a simple homecoming. He was going to take care of the business he has been developing for three years: helping the wealthy Chinese people to obtain permanent U.S. residency.

Kwok’s business went well for the past three years. Bad news came the August 2014: the U.S. Department of State shut down the access for Chinese to apply the permanent residency through making investment. Terrified and flurried, Kwok’s potential customers urged him to go China to work on a strategy.

“I don’t worry about losing new customers; there are always rich people who want the U.S. Green Cards,” said Kwok. “The thing I worry about is I don’t know what time the application will re-open and when I can get my business back going.”

The Employment-Based Fifth preference, also known as EB-5, is the way Kwok helps his rich Chinese customers get U.S. green cards. It is a federal program that allows foreigners to speed through the complicated immigration process, for a price. With an investment of $500,000 in a U.S.-based enterprise that creates at least 10 jobs in a rural area or a community with a high unemployment rate, applicants are eligible to get special visas that put them on a faster track to becoming permanent residents of the States.

The EB-5 visa remains a niche program within the U.S’s massive immigration system: only about 10,000 visas are issues annually. But applications have significantly increased since 2006 as financial challenged towns and organizations have begun to aggressively promote different programs to attract wealthy foreigners.

China, as the fastest developing capital source, featured with a skyrocketed number as EB-5 applicants. According to the statistics from the U.S. Department of State, as of fiscal year 2012, the number of Mainland born Chinese EB-5 applicants was 6,124, making nearly 80 percent of the total.

The investment doesn’t make the tedious application process easier. A large number of applications and the confusions of applying create the demand for the specialized agents. Kwok, as many others who see the advantages of the EB-5 application business, jumps in with full service provided. Agents work with immigration attorneys, local realtors and even travel agencies to make an easier process for their clients. The charge for this service is not small: agent usually takes about an extra 10 percent of the investment, roughly $50,000, as a service fee.

In the niche yet profitable business, Kwok has found his competing strategy. This retired businessman has more than 30 years’ of experience dealing with U.S. – China tile trade; and he has the list of the rich names in the towns of Guangdong Province of China. Each year, he dealt with an average of 20 clients.

More and more people heard about Kwok from friends and join in the EB-5 applications; nevertheless, the amount of visas being issued stays the same. The Mainland Chinese application number increased so dramatically that on August 24, 2014, the U.S. Dept. of State blocked any addition Chinese from applying EB-5 visas for the reminder of the fiscal year 2014; this is the first time ever in EB-5’s 24-year history.

Launched in 1990, EB-5 is designed as a way to boost the economy and create job opportunities. In 2002, the EB-5 Regional Center Program came up. The regional centers are designed be boost the local economy by partially or completely using the EB-5 investors’ money.

Starting with only a handful in 2003, the number of Regional Centers grew to approximately 30 as of January 2009. As of Oct. 2014, there are 768 designated regional centers, with California ranking the No.1 with 146 projects existing, according to the data from U.S. citizenship and Immigration Service.

The EB-5 money has sponsored projects across California. In Pomona, EB-5 funds are here you need a past tense verb used to build the Ranch Plaza, a 350,000 square feet of retail space and 350,000 square feet of office space. In San Bernardino, the city is tapping EB-5 funds to redevelop its downtown theater district. The new construction around L.A. Live, the Marriot Courtyard and Residence Inn, were also partially sponsored by the EB-5 funds.

The success of EB-5 regional centers is not only relying on the investment; the local economy plays a bigger role. Sometimes even worse, some poorly designed centers will fail and be kicked out from the EB-5 programs, with no green cards and no investment return for the investors. The regional centers in El Monte, California was expelled from the U.S. Immigration Service list in 2010 because it was not able to provide the kind of economy development the center was certified to do at the beginning.

Nevertheless, the risk of the project failure will always remain. According to USCIS, 42 percent of past investors received permanent visas. As Bloomberg reported, fewer than 10 percent of EB-5 pools seeking money today may succeed in getting participants both green cards and their cash back.

Alejandro Mayorkas, director of USCIS, said to Bloomberg that: “Our approval of a particular petition doesn’t mean that their investment is a good one; we don’t really get into the business models.”

On the other hand, some EB-5 applicants even don’t know what kind of EB-5 regional centers they are directly involved; they will let a company to take care of their investment. The 45-year-old Mr. Hu, one of the Kwok’s clients who lives in Arcadia, California with his family now, was been told that a company named OMB Regional Center LLC was taking care of the his $500,000 EB-5 investment. He never knew the OMB was actually based in Chicago, Illinois, and neither did he know where his EB-5 investment money went.

“I don’t speak English, so it is really a challenge for me to step out of the Asian community in the U.S.” Hu said in Chinese. “My agent Mr. Kwok told me the money is safe and I trust him.”

For Kwok, EB-5 investors are different. They are not the old kind of Chinese immigrants who get help from their family members and stuck in Chinatown.

“Some of my clients bought some small pieces of lands to build houses and make money. Some of them just don’t want to do anything,” he continued, describing his clients: “they just stay in California and enjoy life.”

A latest research conducted by Hurun Research Center pointed out that 64 percent of the Chinese millionaires have been migrated or preparing to change nationalities to other countries. The United States has been the most popular immigration destination over the past 5 years.

At the first day of October 2014, a new 10,000 quotas for the fiscal year 2015’s EB-5 applications opened. Mainland Chinese were still on the qualified list, with no further restrictions.

Kwok received a phone call from Chongqing, China almost the midnight of the same day: a new client was asking about the new round of EB-5 application and thinking about hiring his as the agent.

For people who apply the U.S. permanent residency under EB-5, the tensions around this niche program will never disappear: the fear of getting involved of fraud; the anxiety of no access to apply; and so forth. But the investment flow and the desire to migrate to the U.S. are hard to stop.

“The government should expand the numbers for application and assist the applicants with a smooth application process,” said Kwok. “No matter what, it is a good thing to the U.S. with more investment coming in and a lower unemployment rate.”

MMM

Money Marks & Media - Spring 2014