Catalina Sea Ranch, a six-mile offshore shellfish farm near San Pedro, CA, is planning to feed Californians with local raised mussels which has been mostly imported from Canada and New Zealand.

As the aquaculture industry has thrived in the past decade, the seafood imports – including mussels – by the United States has grown dramatically. About 91 percent of the value of the seafood consumed annually originates abroad, which represents an $11.2 billion trade deficit, according to National Oceanic and Atmospheric Administration (NOAA). To narrow the deficit and compete with foreign seafood, Catalina Sea Ranch aims to cultivate in a 100-acre ocean and produce high-quality mussels in a sustainable and scientific manner.

[Read more…]

On December 4th, 2014, Best Buy, the largest consumer electronics corporation in the US, announced officially that it would sell its Five Star business in China to the Jiayuan Group, a China-based real estate firm.

This was another huge movement for Best Buy in the Chinese market after it closed all its retail stores in China in 2011. After several years of struggle, the company finally decided to exit the Chinese market, only keeping some of the private label operations, with brand names that included Dynex, Insignia, Modal, Platinum and Rocketfish.

Although it seems to be the signal of Best Buy’s failure in China, investors are actually happy about that. The truth is, the company’s business in China didn’t bring any profit, but instead, it became a huge burden for the company on its way to further development.

The sale of Five Star business will bring about $300 millions to Best Buy, which allows the company to focus more on the North American business and further develop its online business section. Facing strong competition from online shopping websites like Amazon, the only way that Best Buy could survive is to transfer from a big box store franchise to a consumer electronic provider with different distribution channels, both online and offline.

Best Buy entered the Chinese market in the year of 2006 by acquiring local electronic franchise “Five Star.” Then, it opened nine mortar-and-brick stores in big cities like Shanghai and Beijing. At first, Best Buy applied the same business model it used in the US market to the Chinese market: the stores were located in city centers; the company operated it own inventory and bought products directly from other brands; the stores focused more on customer experience and after-sales service.

However, this kind of business model was not applicable to the Chinese market. Chinese customers are extremely sensitive with the price. However, as Best Buy insisted on managing its own inventory instead of lending space to other brands and letting them operate on their own, it was hard for Best Buy to lower its operating expense and provide a competitive price. While local electronic retailers, for example, Guomei and Suning, were able to provide consumers with a much lower price by lending space to other brands and saving huge operating expense, it was almost impossible for Best Buy to earn a favorable market share in China. Chinese consumers might go to Best Buy to experience the product, but when they actually made the purchase, they went to local electronic stores that offered a more competitive price.

The situation was the same in the US market. However, this time, Best Buy’s competitor was no longer mortar-and-brick stores, but the world’s e-commerce giant, Amazon. Unlike Best Buy, Amazon did not have to pay for the operating cost of real stores, and was thus able to provide a lower price. Also, the online environment for consumer electronic industry was already mature in the US. People felt comfortable with ordering electronic appliances online. As a result, Best Buy became a place where consumers could touch and experience the product, but it eventually failed to turn the store traffic into buying power.

Under this situation, Best Buy realized the need to make a transformation in its business model. However, as it was impossible for offline retailers like Best Buy to compete with Amazon on price, the company had to figure out another way to differentiate from its competitors.

As a result, in 2012, Best Buy’s new CEO Hubert Joly initiated a transformation project “Renew Blue,” aiming to combine the offline stores with online website and thus create an “ominichannel” that could make Best Buy products available to customers everywhere.

On one side, in order to save operating expense, Best Buy changed its business focus by closing big mortar-and-brick stores. In 2013 alone, the company shuttered 47 stores in the US, which saved it nearly $ 765 million in operating expense. At the same time, the company also opened more Best Buy Mobile stores, which were 10 times smaller than traditional stores. These small-sized mobile stores were located near the community, which made it easier for consumers to order online and pick up in the nearest store. At the end of 2012, the number of Best Buy Mobile stores had already reached 409, and was expected to increase continually in the future.

On the other side, Best Buy put more emphasis on developing its online business through “bestbuy.com.” Best Buy realized that the only thing that differentiated itself from Amazon was that the company had real stores where consumers could touch and feel the products. Hence, since 2013, Best Buy has been dedicating itself to connect its mortar-and-brick stores with the online website. Before that, Best Buy managed its offline store inventories and the online website separately. Some products might be available in the store, but didn’t show up in the official website. Now, as Best Buy successfully connected the two folds, people were able to shop across different channels, which not only brought more traffic to the offline big box stores, but also saved the company huge money on the shipping cost. In addition, it became easier for consumers to return if they were not satisfied with the product they ordered online after experiencing it in the store. In fact, Best Buy used its offline stores as a shipping center to support online sales, which provided better shopping experience to the consumers.

In addition, Best Buy also initiated store-in-store concepts inside the company. In 2011, Apple, Samsung, Microsoft and Sony reached an agreement with Best Buy to open their boutiques inside Best Buy stores, which saved money on both sides. By the end of 2014, Samsung has opened more than 1400 boutiques in Best Buy stores, which was almost the same number as Best Buy’s existing stores.

In the latest fiscal third quarter results, Best Buy reported a significant increase in its profit, which were two times the number of last year. In addition, the offline sales in the US also increased by 3.2%, which was relatively high comparing to other similar companies, for example, Wal-Mart.

Although the increase in sales doesn’t necessarily indicate the effectiveness of the transformation, it at least shows that the offline retail business is not dying. In fact, nowadays, e-commerce websites like Amazon have also realized the advantage of mortar-and-brick stores in their ability to provide better shopping experience to the customers. For those who want the product immediately, stores like Best Buy are still their favorable choice. As a result, in order to acquire that segment of customers, Amazon announced its first showroom in New York City while eBay put extreme emphasis on its “eBay Now” shipping service.

 

And as for Best Buy, its real stores seem to be the only opportunity for the company to differentiate from the other e-commerce websites. The combination of offline stores and online websites might be the only way to save companies like Best Buy in the future.

It’s a protein, it’s found in plants, and it’s the most hated ingredient in the food industry right now. No, it is not sugar that leads to a high risk of diabetes, and it is not sodium that is linked to prevailing rates of heart disease – it’s gluten. Absurd at it seems, gluten has become public enemy number one, and is getting kicked out of households across the country. Because of media outlets spreading news of gluten like wildfire, gluten has been transformed from an ordinary ingredient to the culprit of a variety of health issues. The consequence of this has grown an anti-gluten passion into a multibillion-dollar market.

Found in wheat, barley, rye, and a couple other grass-grown grains, gluten is formed when two molecules (glutenin and gliadin) are conjoined during the germination cycle of a plant. The bond of these two molecules allow for elasticity in food products, an element that is essential for cooks to create desirable cuisine for their customers. Gluten can be manipulated to form different textures for food; however, it is essential to keep in mind the origin of this protein molecule.

The beginning of the gluten-free tale came about in 2011 when Peter Gibson, a professor of gastroenterology, published a double-blind research study indicating the detrimental affects gluten has on an individual’s health. When his subjects did not eat gluten, their health improved. When gluten was added into their diet, they immediately reported pain and other gastrointestinal issues. As astonishing as the results seemed, it was noted that all thirty-four-test subjects had irritable-bowel syndrome – but the public overlooked this defining detail.

This study raised the awareness of a “gluten anxiety” phenomenon, initiating a new group of people to develop an interest in the topic. To add fuel to the fire, two books about the malicious acts of gluten were released not too long after Gibson’s study was published in the American Journal of Gastroenterology. William Davis penned “Wheat Belly” in 2011, and David Perlmutter followed suit with his book “Grain Brain: The Surprising Truth About Wheat, Carbs, and Sugar – Your Brain’s Silent Killer.”

Celebrity endorsement of the gluten-free movement further pushed along the awareness of this new trend. With the likes of Oprah, Gwenyth Paltrow, and other influential leaders in the social media realm, the notion to ditch gluten slowly crept into the minds of individuals from all different age groups. Soon, this newfound awareness of gluten warped into a trendy diet, initiating the demand for gluten-free food. The magnitude of the gluten free market has astonished both doctors and investors alike, whom are both struggling to keep up with the changing landscape for ditching gluten.

The market value for gluten free products provides evidence for the growing mass of consumers that are vying for gluten free food. With a $10.5 billion dollar price tag in 2013, a 48% increase is expected for gluten free products, leading to a $15 billion dollar estimated market by 2016. Investors have picked up on this development, hoping to get their own piece of the gluten free pie. In 2011, Smart Balance, an investor in small food companies, turned their attention to Glutino. With a price tag of $66.3 million, Smart Balance purchased this gluten-free baking operation.

A year later, the same investment group acquired another gluten-free establishment called “Udi’s” that was about twice the price. It seems the investment paid off, as sales for these two gluten free establishments are up 50%. The Chief Executive of these companies, Stephen Hughes, explained the motive of his purchases in an interview with the New York Times. “Three years ago, we could have bought a Greek Yogurt Company, but instead, we bought Glutino…we think this is a trend with long legs because there is some insulation from the big players- it’s hard to produce gluten free.” Hughes brings up a valid issue with this booming market – and that is the ability to honestly produce a gluten free product.

The Food and Drug Administration (FDA) was prompted to take action with the labeling of gluten-free foods when just about any company could slap on a label indicating it was free from the feared food product. Years ago, the primary reason companies would make gluten free food was for the population with Celiac’s disease – an autoimmune disorder that produced a dangerous enzyme in the body to make up for the lack of being able to digest gluten. The smallest bit of gluten can set off this chain of response for a Celiac’s patient. The importance of correctly labeled food is vital, and their trust in food companies could potentially be a life-or-death matter.

Deception amongst companies who mislabeled their food “gluten-free” became a highlighted issue for the Celiac community; however, the new boom in this market was not looking to attract this group of consumers. The driving force of this market is the population with a self diagnosed gluten intolerance – where believing they were eating gluten free was “good enough.” The FDA cracked down on many inaccurate claims of foods supposedly having gluten-free ingredients.

Surprisingly, the FDA set a gluten limit of 20 parts per million. It is controversial whether or not this is a low enough limit, but this was not the only discrepancy. The FDA requires food products to declare any possibility of cross contamination with wheat, nuts, dairy, and soy; however, gluten is not yet included on this list. A company may not be able to have a “gluten-free” label on their product, but they still do not have to report any possible added gluten.

The barrier the FDA inflicted upon the gluten-free market put a dent on the pace of growing food products, but this did not negatively impact the social influence of eating gluten-free. Almost 30% of Americans reported they wanted to reduce or eliminate their intake of gluten last year, shedding light on the public opinion of pursuing this type of diet. It became a norm for an overwhelming amount of people who jumped on the “gluten-free bandwagon” to diagnose themselves as having non-celiac gluten sensitivity. Conveniently, this type of diagnosis does not involve the approval of a specialist; people have simply taken it upon themselves to play the role of health care provider.

Beyond this, other health care providers are beginning to play along with the gluten-free blaming game. In an interview with the New Yorker, Peter H. R. Green, the director of the celiac-disease center at Columbia University medical school talked about the impact of this growing issue. “A life coach is now prescribing a gluten-free diet. So do podiatrists, chiropractors, even psychiatrists…we are now seeing more and more cases of orthorexia nervosa. First, they come off gluten. Then corn. Then soy. Then Tomatoes. Then milk. After a while, they don’t have anything left to eat…”

This withdrawal of eating that Peter Green refers to highlights the hidden foundation of a fad diet – taking away an element of food that is supposedly “bad.” The point of the diet is to stop eating a harmful ingredient for his or her body, but this is not the same mindset for the patrons of the self-diagnosed gluten-free clan. Losing weight is the main marketing strategy for gluten free food, and the individuals are more concentrated on how many pounds they have lost since (supposedly) giving up gluten. Yet another trick the gluten-free market has cooked up is keeping up this notion of associating “gluten free” to being healthy, no matter the food product. The industry attempts to cater their food items to people who want an exact replacement of the food they ate, just without gluten. Without this pesky ingredient, their once junk food has instantly become healthy. Unfortunately, this is usually the opposite case. Green stated, “Often, gluten-free versions of traditional wheat-based foods are actually junk food…our patients have jumped on this bandwagon and largely left the medical community wondering what the hell is going on.”

The bona fide gluten-free customer is treasured by grocery stores; they spend about $100 per grocery trip compared to $33 for the average consumer. It does not pose as a coincidence that the individuals who are diagnosing themselves as gluten intolerant are also able to afford this price hike. Stores like Whole Foods and Trader Joe’s specialize in supplying large supplies of gluten-free foods, knowing their clientele will purchase it. Trader Joes even joked to sell “Gluten Free Greeting Cards” at a surprisingly low cost of 99 cents each. This notion that the gluten-free lifestyle is aimed at the middle to upper class adds to the hyped up culture of the diet.

To successfully sell gluten-free food to a consumer base with money, it is necessary to “know your audience.” The farmer’s market every Wednesday at the University of Southern California attracts vendors who wish to sell their goods to its students. This is where the “CaveGirl Cupboard” first caught my eye – an all-natural bakery that creates treats with ingredients you can pronounce. They also pride themselves on being gluten-free, non-GMO, low-carb, soy free, dairy free, grain free (and the list goes on). Leia Blanco, one of the founding partners of the company had some time to talk about the vision of the CaveGirl Cupboard, and the success they have found in the Los Angeles area. When asked about the production of their food, Leia made it clear that they bake the products themself.

“At CaveGirl, we make the items in our own kitchens and buy our own ingredients to ensure there are no cross-contamination issues we have to worry about.”

 

Leia noted that they stick to a gluten-free diet, and she has already lost a significant amount of weight from this. She does not have a medically diagnosed gluten allergy herself; however, she insists that she has more energy because of ditching gluten. When I asked about her customer base and how many of them had Celiac’s disease, she hesitated, and said, “Most of our customers love our cookies and other food because it is delicious and fits with their diet. I do not know how many specifically are medically allergic to gluten, but I do not think it is too many.”

CaveGirl Cupboard tables at different farmers markets around Los Angeles, and has built a significant following since their start in 2013. It seems that they have started their company in the appropriate location to flourish in this industry, as their prices seemed a bit steep. “We keep our prices competitive with other products like ours, we know there are customers out there who do not mind paying more for baked goods they can trust.”

CaveGirl Cupboard markets their product to reach out to the stereotypical self-diagnosed gluten free customer, which has brought them success in this industry. As I walked away with a box of four poker-chip sized cookies for five dollars, it dawned on me how much potential companies like this have with prices like that.

The opinion of social media on the topic of gluten has taken a turn for the comedic side. Talk show hosts have taken advantage of the ridiculous growth for gluten free products and services – such as gluten free dog food, gluten free dating services, and the sudden onset of banning gluten from households. A popular show on Comedy Central, “South Park,” illustrated this humor during a recent episode by comparing it to the anxiety of Ebola.

With a firm group of believers in the gluten-free trend, this industry is only expected to continue to grow. Although the endless misconceptions about gluten have doctors shaking their heads, the consumers that can afford this lifestyle are supposedly feeling all sorts of positive effects. Although these same customers believe they can have their gluten free cake and eat it too, the reality is that it is still a cake – and the long-term benefits are not going to pan out.

Adam Jacobs, co-founder and Content Director for BuddyTruk – a Santa Monica based startup that aims to be the Uber for people in need of help moving – made a decision most people in their mid-20s would loathe: he moved back in with his parents.

For Jacobs, though, it was merely a byproduct of “tightening up the budget” and taking a chance on being a part of the next big Los Angeles tech startup.

“In [startup ventures], you absolutely have to be willing to take risks,” said Jacobs, while sitting on the rooftop of their office two blocks from the ocean. “I see it as the next step to something that is a huge success.”

Founder Brian Foley had the genesis for the company when he was using a U-Haul to move into his new apartment, and crashed into his roommates car before even meeting her. As he puts it, all he needed was “a buddy with a truck,” and he would have avoided trying to steer such a cumbersome — and expensive — vehicle.

The idea was too good to pass up when Jacobs was approached by a mutual friend about joining the startup, and convinced the 25-year-old UCLA graduate it was worth quitting his “comfortable” job at Apple to pursue full time.

And walking the halls of the office building BuddyTruk shares with more than 100 other tech startups, it becomes clear many more entrepreneurs share Jacobs’s desire to be part of the changing zeitgeist in LA.

The Company Town that was built on the film and entertainment industry is now becoming one of the premier locations for startup innovation. LA is now the third largest tech ecosystem in the United States (behind Silicon Valley and New York), and the fastest growing market, according to TechCrunch.

Altogether, there are more than 1,000 startups in the Los Angeles metropolitan area, according to company tracker Represent.LA. Silicon Beach is becoming a formidable southern counterpart to Silicon Valley.

While the LA startup scene appears to be blossoming, there remain a myriad of growing pains for companies like BuddyTruk, which launched their app this past August. Development, funding, and acquiring users remain the core roadblocks to success.

“The first two weeks we had two transactions, so it was like ‘ok, there’s a lot of work to do,’” said Jacobs.

Finding a way to get the app name recognized became paramount. Jacobs had to set aside time for “guerilla marketing” by passing out flyers on his old campus.

Things eventually began to turn around with the college move-in season, and the company was featured on TechCrunch and on KTLA 5 in LA. Still, the whiteboard behind Jacobs’s desk outlining the company’s goals for December – 1,500 users, 2,000 Twitter followers, 3,100 Facebook “likes” – highlights the importance and difficulty of simply making your app stand out.

Users are essential to venture capitalists looking to fund these companies in their early stages. For most startups, the game plan becomes: gain a following first, and worry about monetizing afterwards.

Wildly successful LA startups like Snapchat and Tinder understood the gravity of acquiring a large audience before monetizing. Snapchat, valued at $10 billion, only recently began experimenting with short advertisements.

Foley, the gregarious face of the startup, said the business received $175,000 in its opening round of investment, and is now trying to raise an additional half a million dollars. BuddyTruk also met with Target and Costco this month in an effort to provide their service to customers needing large items delivered.

From the outside, everything would appear to be coming up roses for the company: traction, a nice Santa Monica office, and room to grow.

But Foley understands how difficult it is to create a successful startup. The native of Austin, TX started four companies before BuddyTruk. Each one of them failed.

Rather than leaving him dejected, those disappointments galvanized the Pepperdine graduate even more when he was ready to tackle his next venture.

“Each time we ran a company in the past and it failed, I knew exactly why,” said Foley. “So this time around I was more confident than ever raising money and sticking by our mission statement.”

It’s an attitude that entrepreneurs must have to be successful in this industry. Failure is often synonymous with tech startups.

70 to 80 percent of startups fail to see a return on their projected return on investment, according to a study by Professor Shikhar Ghosh of Harvard Business School. And the numbers are even more dire for companies that issue projections and then coming up short of meeting them, with 95 percent falling through.

—

Blake Arnet realizes the high stakes nature of the startup world. His first company, CollegeHop, a social network to connect students with the “most fun and unique places around their area,” floundered.

“You fail a lot before you succeed,” said Arnet. “Building connections and a small company – the whole process was invaluable.”

The experience of starting his own tech company left an impression on the former UCLA basketball player, though. Arnet knew he wanted to get back into the startup world, and recently launched his latest idea.

His latest app, Castoff, allows users to anonymously receive votes and input on pictures from their friends. Arnet believes the idea is more efficient than sending a mass text message, and is perfect for someone trying to figure out what to wear out on the town.

Any residual pain from his experience with his first company has been mitigated by the allure of making Castoff a success.

“I’m very optimistic as a person and with the app,” said Arnet, sitting at the Literati Café on Wilshire, two days shy of his 25^th birthday. “I think [Castoff is] a great app and if people get it in front of them, they’ll like it.”

Like Jacobs, he’s driven to make his startup work by any means necessary.

Arnet personally split the $20,000 needed to get the app off the ground with his longtime friend and co-founder, Adam Jacobson, and Jacobson’s father. He’s working as a private sports coach, Uber driver, and helping with his father’s construction company in Orange County to give him enough time to work on the app. Coffee shops on the West Side and working from home are Castoff’s office space until further funding.

Funding, along with acquiring users, remains the biggest hurdle. While the venture capital market is rich in LA, it still falls well short of Silicon Valley. A company starting with a well-known LA incubator like Amplify figures to raise about half as much as a company in Northern California.

The high failure rate of new apps, which have been personally monetized, only exacerbates the importance of finding angel investors.

“When you’ve bootstrapped a business where you’re not drawing a salary and depleting whatever savings you have, that’s one of the very difficult things to do,” said Toby Stuart, a professor at UC Berkeley’s Haas School of Business to the Wall Street Journal.

To take his company to the next level, Arnet is preparing to pitch Castoff to investors. His goal of $300,000 in seed money would mostly finance the marketing and front-end help necessary to bring Castoff to a larger audience.

Still, the hardest part of being a young entrepreneur can often be simply getting your foot in the door.

“Being first time entrepreneurs, that’s our biggest struggle right now,” said Arnet.

“If you’re a guy like Biz Stone [co-founder of Twitter] you get money ‘like that’ – you get $100 million.”

With the potential funding, Arnet hopes to expand Castoff’s reach to more college campuses, where anonymous apps like Yik-Yak have become increasingly popular.

And while Arnet knew a co-founder he was confident in starting his company with, for others it can be one of the more difficult and time consuming aspects of building a team.

—

The inspiration for Nick La Maina’s app, Tikr, stemmed from an overly excited friend.

“This girl kept posting on Facebook that her birthday was in 50 days, 49 days, 48 days,” said La Maina. “I was like ‘that’s so annoying, she should do this in a countdown app.’”

After researching and noticing the market for a social media app that would countdown to events was relatively barren, La Maina decided to pursue the idea head-on.

But for the 2013 graduate of USC’s Marshall School of Business, there was one main issue: he couldn’t find the right person to start with.

It took countless mixers, hours talking to friends and professors, and working connections to find a match. La Maina compared the experience to dating.

“It was really hard to find someone,” said La Maina. “It too me a year and three months,” to find a co-founder.

The moment was both exhilarating and a relief for La Maina, but there were many other issues to solve. For tech startups, each day is like playing Whac-a-Mole, where one problem pops up the moment another has been taken care of.

Development talent In Los Angeles is growing, but still trails Silicon Valley. Finding a developer for Tikr was a headache, with bids as high as $100,000 to design the app.

As a new company working on a tight budget, La Maina felt it was imperative to get Tikr launched and A/B tested as soon as possible, rather than building the most refined app. Ultimately, he was able to secure a design for under $10,000, and see Tikr featured among the Best New Apps on iPhone’s store.

The rush of growing their user base and trying to bring in additional seed funding makes the high-stress nature of startups worthwhile to La Maina. Like BuddyTruk, Tikr was recently featured on KTLA 5.

“I woke up and there we like 2,000 installs in one morning. It was an amazing feeling,” said La Maina.

La Maina views being an LA startup as an advantage because of its proximity to the entertainment industry. Tikr did a countdown promotion with the History Channel’s Vikings television show and is looking for similar deals.

The 23-year-old is now an associate professor at USC, helping students outline a plan for their own startup ideas. But despite the early success, La Maina is aware the tech startup world is a minefield, and knows the odds are against having the next billion-dollar sale.

“Overall, the app market right now is a really tough one to play in,” conceded La Maina. “People don’t use a lot of apps, they’re tired of downloading them, and to break into someone’s daily habits is a big ask.”

Like other young entrepreneurs looking to make their mark in LA’s startup scene, he knows it’ll take two things – “a lot of hard work and a little luck.”

Before jumping right into what I want to talk about for this final project, I want to take some time to explain what Abenomics is. Basically, it’s a term derived from combination of Abe + economics. It refers to the economic policies implemented by Shinzo Abe, the current prime minister of Japan, since the December 2012 general election, which elected Abe to his second term. Using monetary policy to tackle the 15-year long deflation problem and doing anything to try to reach 2% inflation a year is Abenomics in a nutshell.

Abe has since 2012, tried to revitalize the slow growth of economy by using “three arrows” of “a massive fiscal stimulus, more aggressive monetary easing from the Bank of Japan, and structural reforms to boost Japan’s competitiveness”.[1]

Did Abenomics improve Japanese economy? Well, no one seems to be sure about this. With the third quarter reports that have been announced a few weeks ago and with coming up election in Japan that is going to be held on the 14th, articles about whether Abenomics is a success or not are flooding. There is a huge controversy even among intellectuals on whether Abenomics is actually working or not. It’s hard to tell. However, one thing we know for sure from the official numbers is that Japan is in recession whatsoever.

In November, Japan has officially slipped into a recession despite Abe’s ambitious plans to revive the economy. Everything seemed to go fine until quite recently. In the first quarter, Gross Domestic Product increased by 1.6%. 130,000 new jobs have been created every month since Abenomics started. The excessive quantitative easing by Bank of Japan sharply weakened the value of Yen. This helped big exporters such as Toyota and Sony, driving up company profits to almost a double and increasing stock prices. The new economic measures also resulted in a slight increase in wages and hike in consumer spending.

Sadly, delight in Japanese economy did not last long. As Abe anticipated, prices for goods also began to rise, however, this was mainly due to the weak currency pushing up import costs instead of increase in consumer demand, which meant people’s actual income value has been negatively affected.

To make matters worse, the government made a decision to increase the sales tax from 5 to 8% in April in order to make up for the national debt created by Abe’s radical economic policies. What this means is that Abe’s policy that was trying to encourage people’s spending only resulted in making citizens feel more ‘squeezed’.

Deflation cannot be fixed without increase in consumer spending. Consumers not spending money means demand is low in the market. Because demand is low, suppliers have no choice but to lower the prices to create demand. The whole point of Abenomics is to activate the stagnant economy by making people spend money.  Nonetheless, despite Abe’s struggling efforts, nothing seem to be easing the problem as of now.

As I have been doing research, I have realized that it’s not a matter of how many jobs Abe is creating or how much profits corporations are making. It’s rather more about how the money flows in the market through domestic consumption, which accounts for 60% of Japanese economy. I quickly realized it was people’s lack of confidence that’s really hurting the economy. Therefore, I wanted to find out the fundamental reasons to why Japanese people are so reluctant to spend their money. [2] I tried to give my best reasoning behind it but please remember that my hypotheses on why Japanese people are not willing to open up their wallets are entirely based on my assumptions drawn from my own informal research. They are not scientifically proven or anything.

First of all, my assumption is that it has to do a lot with Japanese culture and people’s characters. I know each and every one is unique in their own ways but I also understand that culture is something that cannot be easily disregarded. People get influenced by the culture they live in and it’s one of the biggest things that shape a person’s character.

Everywhere I looked, most generalizations about Japanese people’s characters were that they were 1) polite, 2) hard to become friends with and 3) hard-working. Among these, polite appeared the most; according to JapanToday, the number one word that describe Japanese people according to foreigners is polite or reigi tadashii in Japanese[3]. Now some of you may be wondering how being polite has to do with people not spending money. It was hard for me to find the connection in the beginning as well, so I decided to conduct a little interview with my Japanese friend Mario. The interview was very informal; it was done online through facebook chat. Mario Fukuo is an undergraduate student at Kwansei Gakuin University in Osaka studying economics. The conversation has been edited slightly to make it seem more assignment-friendly.

Me: “I am trying to find the connection between Japanese people’s characteristics of being polite or their other distinct traits to why they are so reluctant to spend money. Do you think you can explain this to me?”

Mario: “Yeah I definitely see a connection. I think it’s not that Japanese people are stingy. We just like to be vigilant and wary about the future.”

Me: “Hmm.. I don’t understand. I still don’t see the connection. Can you please explain to me more in depth?”

Mario: “Japanese people are definitely suspicious. Being polite can be a very good thing but it also means we don’t easily show our personal thoughts to other people. Also, we are very careful and the last thing we ever want to do is cause nuisance or harm to others.”

Me: “Sorry, I still don’t understand how that has to do with people being careful when spending their money.”

Mario: “Well, as in my case, the last thing I want to do is get money from my parents after I graduate from school. I don’t want to be broke in the future and ask you or my other friends to lend me some money. I don’t want to let my family suffer because I don’t have any money saved when I get fired from work. I mean, nobody wants that but Japanese people are way more extreme when it comes to things like this. Do you get what I mean?”

Mario: “Also, as I mentioned, I don’t really trust others or the government. In the end, I am the one who has to be responsible for myself. This is the common notion among Japanese people and this is the big part of the reason why we are so careful when it comes to spending money. We want to be ready for whatever will happen in the future.”

I have arrived at two conclusions from my own little research. The first conclusion is that word polite can mean personal and individualistic in this context. This also means Japanese people are more suspicious and reluctant to trust other people or the government which naturally lead to saving up money for the future. My second reasoning is that because Japanese people are so polite, they don’t want to be a burden to others (friends, family, etc.), therefore this leads to them saving up money right now so that they won’t have to ask for help and support even when they face hardship.

My second assumption on why people don’t open up their wallets so easily  has a lot to do with the recent history of Japan. I think it has a lot to do with the Lost Decade (Ushinawareta Jūnen) referring to the years from 1991 to 2000. Recently, the new phrase Lost Two Decades are often being used as well which refers to early 1990s to the present. Over the period of 1995 to 2002, GDP fell from $5.33 to $3.98 trillion and was at $4.90 trillion in 2013 in nominal terms. [4] This is the time after the Japanese asset price bubble collapsed causing an abrupt end to Japan’s strong economy in the beginning of 1990s.

 

According to this chart made by The Wall Street Journal, consumption is weak especially among people in their 30s. My guess is that it has a lot to do with them being brought up at a time when Japan hit crisis. These people were born and raised until around age of 10-15 at a time when there was huge prosperity in Japan. During 1988, 33 Japanese corporations made it to the top 50 world’s biggest corporate list. [5] However, things started to change all of a sudden–Japan has lost international competitiveness and many corporations had to fend off competitions from rival corporates based in China and South Korea. As a result, employment rate dropped as well; a huge part of workforce had been replaced with temporary workers who get lower wages and less benefits.

Although economy has been made much more stable comparing to the Lost Decade, those who have experienced it are still very careful about the future. People in their 30s right now who have seen their fathers lose their jobs and experienced abrupt change and who have come of age at a time when economy was still shaky are especially scared of the future. This is why confidence just cannot grow. Obviously if government is not doing well with the economy, how are these people likely to get confident about the future and start spending money right?

My third assumption is that decrease in unemployment rate is only nominal. It in fact does not really reflect real world situation.

I conducted another mini-interview over facebook with my other friend from high school, Tairei Natsuki who is studying law at the University of Tokyo to hear about what job market situation is like in Japan.

Me: “You are graduating soon too right? Do you know what you are going to do after you graduate from college?”

Tairei: “I am graduating in March and I am planning on going to law school after this.”

Me: “What is job searching like for your friends who are not planning on going to law school or other grad schools?”

Tairei: “It’s really hard. It’s even hard for students who graduate from my school (University of Tokyo is the number one university institution in Japan). I know one extreme case. I have a good friend who goes to Waseda University (one of the best private universities in Japan) that sent 100 resumes and had interviews with 30 companies. He at last got accepted by JR-East (railway company) and Japan Airlines.”

Me: What about those who don’t go to a good college if even those who go to a good university. It must be so much harder for them.

Tairei: A lot of people end up being the so called “freeters”. This is a combination of two words free + Arbeiter, which refer to part-time job in Japan. Many people are choosing to go this path this way because companies are still not offering enough full-time job offers.

According to The Wall Street Journal article, “a third of the workforce comprises so-called nonregular workers—temporary, often part-time employees who typically earn less than those who have the security of full-time permanent employment.”[6] Being a temporary worker means having an unstable standing in society. This is another factor that leads to people feeling insecure about the future and making them hesitant to spend money.

As a whole, consumer confidence is the biggest challenge Japan must overcome to revive its economy. It is the conviction Japanese people need to make the economy grow–the assurance that future is going to be better as they move forward. What Abe needs to do right now is not just simply printing out pages and pages of money, what he really needs to do is find a way to make his people happy and have high hopes about the future.

 

[6] http://www.wsj.com/articles/japan-consumers-feel-squeezed-and-thats-a-problem-for-abenomics-1416410445?KEYWORDS=abenomics

[5] https://mirror.enha.kr/wiki/1980년대%20일본%20거품경제

During the time, Japan was the second biggest  but saw an abrupt change in their country when they started going to school and came of age at a time when economic challenges were still there.

[4] https://www.google.ae/publicdata/explore?ds=d5bncppjof8f9_&met_y=ny_gdp_mktp_cd&hl=en&dl=en#!ctype=l&strail=false&bcs=d&nselm=h&met_y=ny_gdp_mktp_cd&scale_y=lin&ind_y=false&rdim=region&idim=country:JPN&ifdim=region&hl=en_US&dl=en&ind=false

[3] http://www.japantoday.com/category/lifestyle/view/the-top-10-words-to-describe-japanese-people-according-to-foreigners

 

[2] http://www.scmp.com/business/economy/article/1643196/does-japans-recession-mean-abenomics-has-failed-or-needs

 

[1] “Definition of Abenomics”. Financial Times Lexicon. Retrieved 28 January 2014.

The traditional cable plan has been hit hard by the consumer driven term “cord cutting”. The Internet has thrown curve balls to a number of industries since its creation and cable TV is currently up to bat. Cord cutting is the word used to describe a consumer ending their relationship with traditional cable packages and turning towards internet-based alternatives. The cable industry has always been dominated by a few powerful players. High barriers to entry, mainly hefty start up costs, meant there was largely little competition.   The internet, however, took down most of the walls and gave consumers easy access to content on a number of different sites.

 

Cable TV packages offer consumers a bundle of content for a monthly price. Included in these content bundles is a range of different programming. While consumers may only watch a select few of the channels included, they must pay for the entire bundle. When cutting the cord, or at least considering it, consumers cite four main reasons. Over half of the respondents cited convenience and flexibility as the main reasons, with advertisements and price also regularly cited according to ComScore’s “The U.S. Total Video Report.”

 

As a result of the internet, and a response to consumer needs, a number of streaming services have popped up giving consumers more freedom in their viewing experiences and a cheaper alternative. In terms of cord cutting, streaming has led “5 percent of U.S. TV subscribers to cut their subscriptions between 2008 and 2013, with 1.25 million (1.3 percent of the total subscriber base) snipping the cords in 2013. The researchers predicted that U.S. TV cord-cutter households will hit 6.23 million (6.2 percent) by the end of 2014.” – Convergence Consulting Group

http://www.fiercecable.com/story/report-canadians-slicing-tv-cord-pace-us-counterparts/2014-04-08

 

https://www.moffettnathanson.com/aboutus.aspx

 

While streaming has seen success, it hasn’t completely taken out cable, leaving the future of TV still somewhat up in the air. Cable still has many things going for it and has the upper hand on streaming in a few areas. If cable is able to adapt to the consumer in the ways streaming has, the future of TV could be one of cord shaving, not cord cutting. The competition between these two content distributors is complex and simply cutting the cord may not be so easy. The TV landscape while certainly shifting is not shifting towards a single alternative. Rather, the industry is opening up to many alternatives, including the original players, leaving it up to consumers to create their own bundle of content providers.

 

Streaming took the opportunity to capitalize on cable’s mistakes and in turn was able to fix the four most prominent consumer complaints. Cable TV has been the same for quite some time and until now hasn’t had to change. While the cable TV model hasn’t been a consumer pleasing one for a while, few alternatives had kept people paying for the service. The internet opened the industry up to alternatives and left the old pay TV model to play catch up as consumer tailored streaming services began attracting customers. Content streaming sites such as Netflix and Hulu have risen to success relatively quickly because they are consumer focused. Netflix recently reach over 50 million subscribers in 2014. The first problem streaming solves is price, as most of the services are offered for around $10 a month. Though consumers may choose to subscribe to a number of different sites, increasing costs, streaming gives the consumer more control over how much they pay. The lower prices also open the market to consumers who aren’t avid TV watchers. For the consumer who only wishes to watch TV on occasion, close to a hundred bucks a month is a hefty price tag with cable.

Back in 2011, when Netflix was just starting to become popular, CEO Reed Hastings was quoted as to why Netflix was successful. “The streaming service is priced so that people who use it once or twice a month will still find value and come back. And those who use it once or twice a week will rave about it to friends.”

The low prices take the pressure off utilization and in turn have increased the market for subscriptions. The price structure takes TV out of the luxury product category and places it closer to that of an impulse purchase or an easy buy. Netflix has stated that their core principle is “personalization and user choice” and with this principle they have given the consumer the power.

 

The power doesn’t just stop with pricing either, streaming gives users access to a database of content available to be used at any time. The eight PM television slot used to be the heyday of the daily TV schedule but, over time the American lifestyle has evolved, and people are busier than ever. Cable gives viewers access to content only when it is scheduled and this model no longer fits with the on demand lifestyle the American consumer is living. With the digital age, instant gratification has become a consumer necessity and streaming has given users just that with TV they can choose to watch at any time.

 

Lastly, streaming has solved the problem of advertisements. As the American lifestyle gets busier and busier, consumers have less and less patience for unnecessary time suckers like commercials. The distaste for commercials has led to a number of inventions, starting with recording devices such as TiVo. Sites like Netflix have taken it one step further by deleting commercials completely. With the cable model, commercials are what make money as advertisers pay hefty prices to promote their product alongside hit shows. The more viewers watching a show, the more an advertiser will pay, meaning it matters how much and how often a user watches TV. Netflix has changed this model with its subscription fee. Regardless if a user watches one show or fifty a month, the site makes the same amount of money. This means Netflix’s only concern is the number of subscribers. So instead of shoving mixed content bundles down consumer’s throats, Netflix only has to focus on the consumer experience. It doesn’t matter what you use of Netflix content, just that you sign up. Because of this, Netflix has created an extremely attractive consumer experience.

 

While there are a number of things the streaming industry is doing to win customers over, live TV isn’t one of them. Streaming offers content to consumers when they want it, except if they want it live. Although this isn’t a problem for TV shows and movies, it poses a major problem to the passionate sports fan. Many in the TV industry have labeled sports the glue of the cable bundle. A Harris Interactive Poll recently conducted, found “43 percent of U.S. adults naming live sports as the reason they won’t cancel cable.” Sports are a major TV event for many households and because of this, cable TV hasn’t been completely overrun. Though many consumers would want to pay for sports alone, cable TV is sold in bundles meaning sports are package alongside a hundred other channels.   While the price tag for the bundle to only watch a fraction of the channels is large, to many sports fans it is still worth it.

USA Today contributor Jennifer Jolly speaks on why sports and streaming haven’t quite worked.

“The trouble with online streaming services for sports is that most of them are subject to media blackouts, meaning broadcasters have exclusive rights to live games. So the home team, which you’d see broadcast on a local station, won’t be available to watch on any online streaming service. So it’s pretty tough — but not impossible — to watch live sports online, legally.”

Sports are certainly a major part of the cable equation, and the way access to live games is handled will be a major factor in cable TV’s future. If cable providers are able to keep exclusive access to sports content, then they will slow the cord cutting movement. With sports, many people have questioned why cable networks don’t offer a sports only bundle, which could save certain customers’ money. While this idea in theory sounds like a good one, it doesn’t work in cables current model. By the time all the fees are added up in order for the networks to make money, the price would still amount to a hefty $50 dollars plus for only about 13 channels. http://www.businessweek.com/articles/2014-11-12/why-cable-tv-mini-bundle-for-sports-would-be-expensive-and-unlikely

More so, the large bundle of channels allows cable companies to package worthless channels with expensive ones that users are willing to pay for. An all sports bundle would mean people would no longer be paying for the worthless channels and it would result in lost revenue across the board. Sports give cable positioning power in this new market space. If cable is able to find a way to leverage that power in a consumer pleasing way, there is a space for them to be successful in. The expensive standardized channel packed bundle has lost its appeal, as consumers now want a custom experience with their content. While currently an all sports bundle does not economically work, cable companies need to find a way to make smaller more curated bundles. A smaller bundle that included sports would appeal to many levels of sports fans, including those who only put the game on occasionally. With sports in their pocket, it is not too late for cable companies to make changes to better compete is the consumer tailored market.

 

Sports however, aren’t the only reason people are choosing to stay plugged in. Comscore found “that 24 percent of TV viewers ages 18 to 34 don’t subscribe to a traditional pay TV service”. Nearly 46 percent of those viewers never had cable to begin with, while the rest simply cut the cord. While the numbers cited here seem large, they are only large for the younger generation. In the same study, Comscore found that, “generally speaking, the older the viewer the greater percentage of time spent watching on traditional”. The cable alternatives, such as streaming, are all recently developed digital platforms that to many older viewers seem “incredibly complicated”. So while cable may seem like a hassle, to some the internet seems like a far more complicated alternative. On top of the generational gap, the cable providers are often a homes broadband subscriber as well. As a result, cable companies often offer combined internet, phone and TV packages. To many users cord cutting means changing more than just their cable package and the hassle isn’t quite worth it. The younger generation, more specifically the millennial generation, has grown up with the internet and streaming is a much more natural progression. Several studies have reported a rise in people who have never even had a cord. While cord cutting seems to be on the rise with the youngest forth of the population, many of the generations that grew up with TV have held out. Though cable companies are going to have to change, many consumers are still plugged in and a consumer-focused change may be enough to stop the cutting.

Streaming has solved many of cables problems but, to many users this hasn’t been enough to cut the cord and as a result, streaming has had to go one step further. With many users choosing to keep cable due to live TV and other reasons, Netflix hasn’t gotten its 50 million subscribers from cord cutters alone. In order to grow, streaming has had to position itself not only as a cable alternative but a cable addition. More so than a cable addition, individual streaming sites have had to make themselves standout amongst each other. Streaming’s success has led to a number of players entering the game and while different sites differ slightly, they all largely offer the same thing. Not only are new streaming companies arising but traditional companies are adapting as HBO and CBS just recently announced plans to offer streaming options. Due to competition, these streaming sites have positioned themselves as the subscription a customer needs to have, regardless if they already have cable or other streaming subscriptions. The most notable way this has played out is through original content. Sites like Hulu and Netflix have created their own shows and mini-series in order to appeal to customers. Netflix had huge success this year with their series Orange Is The New Black, a show exclusively available on Netflix. “Netflix Inc. (NFLX), posted second-quarter signups that beat analysts’ estimates as the women’s prison series “Orange Is the New Black” lifted users past 50 million.” – Bloomberg.com. The original content is a draw for users, and the low subscription fee has led many users to sign up just for a single show. Original content has positioned streaming to be something users want no matter what their TV situation is, and it has allowed these services to grow tremendously.

 

The way streaming sites have diversified themselves has made streaming less about which site is the best and more about how added together a consumer could get the ultimate viewing experience. The cable industry is changing as the TV world becomes unbundled, however, nothing has stood out as a one-stop solution for TV. The different streaming sites out there now offer different content, different plans, and different benefits. There hasn’t been one yet that has been able to address all consumers’ needs in the way cable did in the past.   As a result, the unbundled world of TV may actually be a bundled world, just a curated bundle. The avid TV watcher is not happy with just one streaming site or just cable, and as a result, there have been many consumers subscribing to multiple services at once.   Following this trend, a few products have come out like Roku that allow users to display their many streaming services in an app like fashion on their TV. Instead of flipping through channels, users pick content from their subscription services, one night they may watch Netflix, the next it could be Hulu. Depending on the user’s budget and need for content, they could subscribe to any number of sites weighing which subscriptions they want to pay for. For many users, the totaled subscriptions have ended up looking very close to their original cable bill, however, the freedom to create their own bundle has left many customers more satisfied with their content. There have also been a number of users that choose to rack up subscriptions on top of their cable bill.  The number of people subscribing to streaming on top of their cable bill could grow tremendously if cable companies offer smaller personalized bundles. Bloomberg’s Lucas Shaw, using data from Hudson Square Research, states that “it would cost over $100 a month to subscribe to Netflix, Hulu, HBO, CBS, the Tour de France, WWE wrestling and three of the four major pro sports leagues. And that’s on top of what you’re already paying for Internet.”   Though consumers have been racking up subscriptions fees these fees are for hand picked content not a giant bundle. While streaming’s low prices may be a draw for some, for others, price is just a small part of the equation. The cable bundle leaves consumers to believe they are paying for unwanted content and therefore wasting money. Streaming bills that could total close to that of a cable bill aren’t seen as wasted money because each dollar is specifically and personally spent by the consumer. Together, these streaming sites have been able to give consumers what cable never has, a personalized experience.

 

If cable companies are going to survive in this shifting environment they need to focus on the consumer. Cables solution doesn’t lie in the little problems, but rather the fact that the average consumer is changing. The main reasons people cite for switching to streaming are price, access to content, convenience, and advertisements. All four reasons are part of the larger consumer trend, personalization.   The one size fits all model no longer works as the present day consumers expect personalization in almost all markets. Cables strategy of more is better by creating a massive bundle is no longer what the consumer wants. Streaming, while largely a result of technology and the Internet, it is more so a result of the evolving consumer. The internet has given marketers a way to access more consumer data than ever, and as a result, they can deliver customized advertisements and product deals. The present day consumer has not only become accustomed to this personalization, but wants and expects it. According to Forbes Insights, “more than three-quarters of consumers saw the benefit of trading personal information for more relevant discounts and offers, and 62% were willing to do so in return for personalized offers.” http://www.forbes.com/sites/sap/2014/03/12/personalization-the-secret-to-better-customer-experience/

Netflix is a prime example of the personal media experience. Netflix offers three ways to watch their content: instantly to a computer, instantly to a TV, or through mail in DVDS. Beyond the viewing experience, Netflix allows customers to rate content and the site offers tailored movie suggestions to the consumer. Netflix also keeps a database of what the user has watched and provides personalized movie ratings for new movies based on the user’s previous scores. Personalization is where TV is headed regardless of the viewing platform or subscription site. Users want control and that is what streaming has provided them.

“With social media, YouTube and Netflix serving up exactly what the user wants, it’s no wonder that personalization is no longer a luxury, but an expectation. Businesses that fail to understand this change are charged with the unenviable task of shoehorning old media into a market that demands change and adaptation.” – Eric Siu Contributor for Entrepreneur magazine http://www.entrepreneur.com/article/236574

The consumer has changed and cable has remained mostly the same, but it is not too late for cable to catch up.

 

Streaming sites have been the first response to the changing consumer and while this has gained them interest, this interest hasn’t been enough to break down cable. The internet has left many companies behind but the TV industry isn’t quite there yet. Cable TV is not in the same position the CD was in a decade ago where technology overran it. Cable is still largely in homes across the country and has an upper hand to consumer access both with cable and internet services. The problem cable companies face is not getting consumers, but keeping them. If cable is able to offer consumers a chance to personalize their bundle they are well positioned to survive. Cables power over live TV and broadcast exclusive content means they already have the diversification these streaming companies have had to create. If cable companies can unbundle to some extent and position themselves as one of consumers many content sources, they have a chance. Traditional cable TV as an outlet is not what is outdated, the customer experience these cable companies provide is. The TV landscape is getting unbundled giving consumers the ability to put the bundle back together again. This new bundle may in fact include many of the original cable TV players and a well in tact cord. The decisions these cable companies make and how they change in response to the new consumer demands will prove to be vital. With the many content providers out there now, the industry isn’t looking at cord cutting, but cord shaving. Consumers have proven that they aren’t looking for an all-encompassing solution to TV but rather; they want the ability to create their own solution by piecing together many content providers. The story of cable may well not be one of competition against streaming but one of unity with streaming. While cord cutting is a very easy word to throw around, the TV industry isn’t just looking at a switch between cable and streaming, but rather a restructure of the entire consumer experience. The cable giants are still big players in the game with a strong lineup (live TV) and how they bat will be extremely important to the TV landscape.