Wanda’s Hollywood Ambition

Wang Jianlin, the richest man in Asia, is trying to change the balance of power in the global entertainment business. As the head and the founder of the largest Chinese commercial property company Dalian Wanda Group, Wang has made decisions to spend billions to buy his way in Hollywood. After the company became the world’s largest cinema chain operator in 2015, it announced several other acquisition and partnership with major Hollywood Studios. While facing critics and doubts, the company is not hiding its ambition to become a global entertainment colossus.

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Both Wanda and Hollywood are facing opportunities and concerns. To Wanda, it is shifting focus from property development to entertainment, hoping to start a new chapter of its business legend. Since 2012, Wanda has spent more than $10 billions to invest in everywhere from worldwide theater chains to Hollywood studios. But it takes time to define whether these are financially smart decisions. To Hollywood studios, having Wanda and other Chinese investments backing their projects means they have capitol to make the film they want to make; more importantly, they have access to the restricted Chinese film market. But at the same time, it raises concerns that Chinese might start to have too much influence over Hollywood.

According to Forbes, the 61-year-old Chinese businessman Wang Jianlin has a net worth of $32.8 billion as of November 2016, and his company’s assets amounted to over $90 billion. Before it made its moves on Hollywood, Wanda Group primarily focused on its commercial properties. Founded in Dalian, China in 1988, Wanda first started as a residential property company. To date, Wanda has established 160 commercial shopping malls throughout China.

Starting 2012, the company decided to shift gear to entertainment. Wanda Cultural Industry Group, founded in 2012 and became one of the company’s main focuses, has already become the largest entertainment company in China. Prior to the cultural group, Wanda established its film division, Wanda Media in 2010, which has already become the largest private Chinese film production company. It seems like the company has an obsession of becoming “the largest” or “the best,” and yes, the cultural group aims to become one of the top five entertainment companies in the world by 2020.

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This is an aggressive ambition. In hope to make it happen, Wanda followed up with a serious of direct investments, starting with its acquisition of AMC in 2012.

In September 2012, a byline started to appear underneath every AMC logo: A Wanda Group Company. Wanda spent $2.6 billion on this acquisition. AMC was the second largest movie theater chain in the United States at the time, and has over 5,000 thousand commercial movie screens in the U.S., out of a total of 40,759, and the acquisition has made Wanda the largest cinema operator in the world. However, prior to the purchase, theater operators in the U.S. were facing big challenge from low attendance rate. According to New York Times, attendance in North America 2011 fell to $1.28 billion, which is the lowest since 1995. At that time, it was unclear what caused the downfall, but theater certainly didn’t seem like the best investment that would earn Wanda much quick money.

Is it really a good deal for Wanda to buy AMC? At least Wang Jianlin thinks it is.

“It doesn’t matter how much money we make,” Wang was quoted in a Forbes interview. Perhaps rather than getting instant return, his vision is more towards making Wanda a globally known brand. In fact, the act of purchasing AMC had gotten Wanda and himself immediate public exposure. All of the sudden, Western media are writing about a Chinese entertainment company. From a public relation point of view, this is a long-term investment that comes with “free” advertisement.

(120905) -- LOS ANGELES, Sept. 5, 2012 (Xinhua) -- Chairman and President Wang Jianlin (R) of China's Dalian Wanda Group Co. and AMC chief executive officer and president Gerry Lopez attend a press conference at an AMC theater in west Los Angeles, the United States, on Sept. 4, 2012. China's leading private conglomerate Dalian Wanda Group Co. on Tuesday completed a high-profile acquisition of AMC Entertainment Holdings, Inc., valued at roughly 2.6 billion U.S. dollars, in Los Angeles. (Xinhua/Zhao Hanrong) (nxl)

Moving on to 2015, Wanda spent another $3.5 billion on Legendary Entertainment, one of the biggest filmmaking studios in Hollywood. In the past, Legendary had co-produced many well-known movies including “Jurassic World” and “Interstellar.” Some of its productions are more popular in China than in the U.S., such as “Godzilla” and “Warcraft.” The company’s future productions will likely include more Chinese elements and characters not only because it is now owned by a Chinese company, but also because of the access of the huge Chinese market. The number of movie screens in China has been increasing dramatically since 2009. As of 2015, China has 31,882 screens, which is more than triple to the number in 2011.

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Legendary’s upcoming production, “The Great Wall” will release in February 2017. Directed by Chinese director Yimou Zhang and starring Matt Damon, the movie will be distributed by Universal Pictures and two other Chinese distribution companies. This is a giant Hollywood production produced by a Chinese production company – although it wasn’t Chinese until last year.

Just two months after acquiring Legendary, Wanda paid $1.1 billion in cash to settle a deal with Carmike Cinemas, adding 2,954 screens to the AMC family, making it the largest theater chain in the world. The stock prices for both Carmike and AMC raised a little bit right after the purchase, signaling a good start for the merger.

Soon after the deal with Carmike, Wanda tried to make a deal for Paramount. Earlier this year, Paramount was looking for a party to buy 49 percent stake of the studio. Wanda was interested in making about $1 billion equity investment. However, after months of talking, Viacom abandoned the plan to sell in September. In response, Wanda almost immediately announced a partnership with Sony. The exact size of this negotiation was not released, but it is likely to be a smaller investment that won’t give Wanda a lot of initiatives on Sony’s strategic decisions. The company will now provide 10% to 15% in co-financing on some of Sony’s films, including the upcoming production “Passengers.” It will also be Sony’s strongest support on film distribution and marketing in China.

As of now, two months after partnering with Sony, Wanda announced another acquisition for Dick Clark Productions, offering about $1 billion. Dick Clark Productions had produced many television shows and awards, including the Golden Globes and “So You Think You Can Dance.” This acquisition marks Wanda entering the world of television production.

The series of intensive movement is causing lawmakers concern. They are worried that the company’s decisions might have been made in favor of the Chinese communist party, which may perform a “foreign propaganda influence over American media.” Traditionally, Chinese’s cultural presence has not been very strong. So the government has made “enhancing China’s soft power” as one of its priorities. The concerns seems logical especially when Wang Jian Lin is a businessman with a communist party background.

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Wang Jianlin explained his business motivation at Wanda’s L.A. Film Summit in October. “Chinese box office revenue has the potential to maintain an annual 15 percent growth for about a decade,” Wang said. By acquiring American companies, he is not only bringing technology and talent back to China, but also opening up the market for the American content. Wang believes his investments will thus be beneficial. And if Hollywood wants a share of this giant market, it needs cooperation with Chinese companies, and it needs to have better understanding in Chinese audience.

Hollywood isn’t the only place Wanda invests in. At the summit, Wang also encouraged Hollywood Filmmakers to come to Wanda’s new movie studio in Qingdao, China. Said to be the largest movie studio in the world, the Qingdao Oriental Movie Metropolis is aiming to rival Hollywood. Situated on a 494-acre site, the studio complex costs Wanda $8.2 billion to build and will open in 2018.

Wanda is not the only one to invest in Hollywood. Other Chinese conglomerates, such as Alibaba and Tencent, have also expressed interest. On Monday, Oct.10, Alibaba announced a partnership between its subsidiary Alibaba Pictures and Steven Spielberg’s Amblin. Earlier, Chinese internet giant Tencent and Hong Kong based information and communication technology company PCCW had also said they would invest $1.5 billion to STX Entertainment.

All those Chinese investments signal greater Chinese influence in Hollywood. However, by far Wanda seems to be the only one determined to enter the game as a main player. All together, Wanda has spent about $10 billion on investment in Hollywood, and certainly is willing to spend more to seal deals with Hollywood giants. Even for a man like Wang Jianlin, that’s still a lot of money. Only one thing can be certain, that the entertainment industry has become one of Wanda’s main strategic focuses. The company said it would become one of the five cultural enterprisers in the world by 2020, and it is keeping up with its ambitious vow.

 

 

Other Reference:

http://www.voachinese.com/a/wanda_purchasing_20120716/1405262.html

http://www.theepochtimes.com/n3/2089188-chinas-hollywood-takeover/?utm_expid=21082672-12.JPI1vw8-RKyYhrWpuuXhuA.0&utm_referrer=https%3A%2F%2Fwww.google.com%2F

Wanda’s Legendary Buy Is Just the Beginning of China’s Investment in Hollywood

http://yuleyingtang.baijia.baidu.com/article/649735

http://www.wsj.com/articles/chinas-dalian-wanda-buys-legendary-entertainment-for-3-5-billion-1452567251

 

How does the fluctuation in fuel prices affect automakers’ sales?

From the second quarter of 2014, there has been a sharp decline in global fuel prices, which not only meant a lot of extra money being saved for vehicle owners, but also meant major changes in the sales and profits of automobile manufacturers. Vehicles and fuel are dependent on each other, and the price and demand for one affects the price and demand for the other. The fuel industry is driven by car sales, and changes in fuel prices also greatly impact consumer spending on vehicles, which in turn affects the revenues and profits of automakers. There are different ways in which automakers can be affected by volatility of oil prices. Changes in oil prices affect overall consumer spending and behavior. Also the sales of fuel-efficient, high fuel consuming cars and alternative fuel cars are affected differently when hit by a substantial increase or decrease in oil price.

The trend in oil prices for the past three years is shown in the following graph published by the NASDAQ stock exchange.

 

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The last three quarters of 2014 is the crucial period that is to be focused on when exploring the correlation between declining fuel prices and vehicles sales and profits made by manufacturers. A more comprehensive view of these quarters as compared with its previous years can be seen in the following graph.

 

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The average oil price decrease through 2014 has greatly impacted consumer spending and saving. When oil prices go down, consumers think they are inevitably saving a lot of money. In a paper published by NACS, Jeff Lenard elaborated that fuel is a commodity that is intertwined into an average citizen’s everyday life and changes in fuel prices fundamentally impact consumer spending and behavior in different ways.

Firstly, some consumers might change their driving habits. When asked through a NACS survey why people were driving more when compared to the previous year, the answers by people from different genders and age groups were very close to the results summarized in the table below.

It is evident from this table that lower gas prices were 40% of the reason why people chose to drive less and these people were almost equally distributed throughout all the age groups. Hence this indicates that fuel prices have an affect on consumer spending and consumer behavior, which is critical to the sales of the automobile industry.

Secondly, consumers are sometimes able to make decisions on weather they will reduce their driving if gas prices increase. A different survey, also conducted by NACS explored this issue and asked people how much would oil prices have to increase for them to lower the number of miles they drive, and the results were summarized in the graph below. The graph below illustrates the average gas price for each month and the increase in the oil price that would have to occur for consumers to start reducing their driving. Most results show that if oil prices were even $1.00 more per gallon, there would be a direct effect on the number of miles driven by vehicle owners.

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During changes in fuel prices, not only is consumer behavior changing accordingly, but people also feel differently overall about the economy which affects every industry, and the automobile industry is especially hugely affected by this. The overall feel of an economy is a subjective term that can be defined by varying characteristics. For example, it could be defined by many characteristics, like economic recessions, decline in the stock markets, or political instability. However, it could also be measured by more specific factors like decline in oil prices. For example a survey that asked target customers during 4 different years (with distinctive oil prices) about how they essentially felt about the economy, their response reflected that the there was more optimism in the economy within people and their consumer behavior during the periods of sharpest decline in oil prices. The outcomes of the survey are presented in the diagram below.

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When people have a positive attitude towards the economy because of decline in fuel prices, they tend to be more liberal about spending money, because as mentioned previously, they think they are certainly saving money on gas (vehicle owners). As a result, this benefits the retail industry, and the sales and profits of automobile manufacturers are impacted in an interesting manner.

The data pertaining to light weight vehicle sales and oil prices throughout the years is displayed in the graph below.

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It is evident from the graph the fluctuation in oil prices is not directly consistent with the sales of light weight vehicles. However, it would be useful to breakdown the broad category of these vehicle sales into categories to analyze the trend in detail, firstly, small light weight cars, secondly big SUVs and trucks and lastly hybrid or electric vehicles that do not run on fuel.

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Small vehicles that have a high mileage, which means they drive for a high number of miles for the amount of gallons of fuel, and these vehicles are usually the more fuel-efficient vehicles. Fuel-efficient vehicles usually have higher sales during of periods of rising or high oil prices.

As can be seen in the graph below that is comparing fuel prices and sales small fuel-efficient car sales, the trends of both have been very similar. There is a direct correlation for the trends of oil prices and sales of small cars from 2010-2014.

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The second category of cars that can be explored is large cars that include SUVs and trucks. These large cars are usually gas-guzzlers, which means they give a lower number of miles for a certain amount of gallons of fuel and hence consume a lot of gas. The trend between large car sales and oil prices from 2010-2014 can be seen in the following graph.

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There is not a consistent relationship or trend between changes in oil prices and sales of large cars. For example, there is a major decrease in sales of large cars in the second and third quarter of 2010, but there is a decrease in oil price in the second quarter and increase in the second quarter. Also during the last two quarters of 2013, when the US was progressing towards recovering from the financial crisis of 2008, there was an increase in fuel prices but large car sales were slowly diminishing: which could have been because of their low mileage and fuel efficiency. During the period of decline in oil prices, the sales of large cars did not increase. It continued to decrease, but at a much lower rate. This shows that oil prices are not the sole factor that determine or influence car sales, especially in the large cars/SUVs segment.

The third and final category of automobiles that can be explored is the alternative fuel (electric or hybrid) vehicles. Within alternative fuel vehicles, there are electric cars and hybrid cars. Only about a little less than 1% of households in America drive an EV, so though they do not have a very significant contribution towards the automobile industry, it is extremely important to consider EVs, especially when comparing its trend with fuel prices, because EVs are the primary potential solution to the energy and fuel crisis. Analyzing the trends of sales of EVs is important because they are a key alternative to fuel run cars that will face a major crisis in the future.

The following graph shows the trends of oil prices as compared with electric vehicles, and there is almost no correlation between the two. However as mentioned before, electric vehicles only make up less than 1% of total car sales, and how oil prices affect EV sales would not drastically matter for the automobile industry as a whole.

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Hybrid cars are cars which combine the systems of both a conventional fuel run engine and an electric vehicle. Hybrid cars make up a larger percentage of the automobile industry than electric vehicles. The graph below quantitatively compares the trends of changes in oil prices and sales of hybrid cars.

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It can be inferred from this graph that the sales of Hybrid cars have been quite coherent with changes in oil prices, except for in the last few quarters of 2011. Similar to the trend in small cars, hybrid cars are also considered very fuel-efficient. Hence their sales go up as fuel prices go up because they do not require as much fuel to run for the same number of miles as other cars, and when fuel prices decrease, consumers inevitably think they are saving money and opt for bigger gas guzzler cars, reducing the sales of hybrid and small fuel efficient cars.

In conclusion, to answer the research question posed at the very beginning of this composition: fluctuations of fuel prices do affect car sales, but very distinctively for different categories of cars. Changes in oil prices both directly and indirectly affect car sales. Fuel prices directly affect car sales when trends in sales of a certain type of car changes correspond to trends in oil prices (for example small cars and hybrid cars). Changes in fuel prices indirectly affect sales of cars by influencing consumer spending and behavior, which is in turn reflected in every retail industry, including sales in the automobile industry. Fuel and cars are almost like complimentary goods from an economic perspective and hence the connection between oil prices and car sales is significant. Consumers’ decisions to purchase certain types of cars is however not solely dependent on fuel prices. A vehicle buyer takes a lot of different factors into account before buying a certain type of car. Also, with the swiftly progressing nature of technology, hybrid cars and electric vehicles have been revolutionizing the nature of the automobile industry. Though EVs do not make up a large percentage of car sales, hybrid cars, especially the Toyota Prius have been becoming increasing popular. Another interesting element to consider could be that many of the self driving cars being built by Uber have been focusing on increasing fuel economy, reduce oil use and curb carbon emissions, according to an article in the wall street journal, written by a former energy advisor for the government. This could also make car sales and decisions made by consumers less dependent on fuel prices. However, driving habits itself have been affected since the initiation of Uber, and car sales have been affected since, so it would be intriguing to see how much further effect the introduction of self-driving cars by Uber have on car sales. Nevertheless, fuel prices continue to affect sales of automobile manufacturers in a substantial manner.

Sources:

 

http://www.usatoday.com/story/money/2015/08/03/nissan-us-sales-up-8-big-vehicles-soar/31046075/

 

http://www.fuelsinstitute.org/researcharticles/fuel-prices-auto-sales.pdf

 

http://www.nacsonline.com/YourBusiness/FuelsCenter/Pages/2016-Retail-Fuels-Report.aspx

 

http://www.lazardnet.com/docs/sp0/18334/USConsumerAndCorporateBehaviorInALowOil_LazardResearch.pdf

 

http://www.nacsonline.com/Media/Daily/Pages/ND1114144.aspx#.V_xRSenBzzI

 

http://www.nacsonline.com/YourBusiness/FuelsCenter/Documents/2016/Consumer-Sentiment.pdf

 

http://www.ucsusa.org/clean-vehicles/electric-vehicles/bev-phev-range-electric-car#.V_1LV-nBzzI

 

http://blogs.wsj.com/experts/2016/04/27/how-driverless-cars-might-actually-harm-the-environment/

 

 

Mongolia to Minegolia: The role of mining in the rise of the Mongolian economy and its uncertain future

A nomadic herder rides past a traditional ger in Northern Mongolia.

A nomadic herder rides past a traditional ger in Northern Mongolia.

Traveling outside of Mongolia’s only major city, Ulaanbaatar, can seem like traveling back in time 800 years. Among the hundreds of miles of rolling hills in which you would be hard pressed to find any permanent, man-made structure, you half expect to see Genghis Khan’s enormous army thunder down a hill aboard hardy little ponies. Nomadic herding culture has been a part of Mongolia for thousands of years and it remains a major part of Mongolian life however, Mongolia’s economy is undergoing massive transformation that could change both the cultural and natural landscape forever.

From 2009 to 2013, the Mongolian GDP nearly tripled in size from a scant $4.584 billion (US) to $12.582 billion, according to the World Bank. Yet more important than the rise of the nation’s GDP is the source of economic growth and geographic location: valuable minerals and metals and its location just north of resource hungry manufacturing powerhouse, China.

The story of Mongolia’s rise from irrelevance to noticeable actor in the Asian sphere began in 1997 when the democratic government, established after the fall of the Soviet Union, which maintained Mongolia as a buffer against China, passed the Minerals Law of Mongolia. This law established the state’s ownership of all mineral resources within its borders and reserved the right to sell mining and exploration licenses.

Mongolian GDP as reported by the World Bank. Click for the interactive graph.

Mongolian GDP from 1981 to 2015 as reported by the World Bank. Click for the interactive graph.

The goal of this law was to grow Mongolia’s economy after a dip that left their GDP below the billion-dollar mark from 1993 to 1994. If the government could sell its mining and mineral exploration rights to international mining corporations, it could dramatically increase levels of foreign direct investment, lower unemployment, and raise GDP.

For investors, abundant Mongolian reserves of copper, gold, fluorspar, and uranium were highly attractive. Especially in the early 2000s when prices for rare earth metals and minerals were climbing. In addition to natural resources, Mongolia shares a border with China, the world’s largest importer of raw materials. This presents a lucrative opportunity to sell materials to China at a lower price by minimizing transportation costs that make metals and minerals from South America more expensive.

Foreign Direct Investment in Mongolia from 1991 to 2015. Click for an interactive.

Foreign Direct Investment in Mongolia from 1991 to 2015. Click for an interactive.

Combining natural resources with its proximity to China, a country that imported $25.1 billion in refined copper and $63.9 billion in gold in 2014, Mongolia looked like the world’s premier destination for mining operations.

After a few years of exploration on the Mongolian steppes, international mining mavens concluded that there were fortunes to be made and the investments started pouring in. From 2009 to 2011, a World Bank report found over a $4 billion increase in foreign direct investment from $623 million to $4.713 billion.

GDP Growth in Mongolia from 1960 to 2015 as reported by the World Bank. Click for an interactive.

GDP Growth in Mongolia from 1960 to 2015 as reported by the World Bank. Click for an interactive.

High investment was not meant to last. Beginning in 2012, foreign direct investment plummeted just as quickly and dramatically as it shot up. Investors likely balked at copper prices that plummeted in the second quarter of 2012. As a result, between 2012 and 2015, foreign direct investments fell $4.2 billion to a mere $196 million last year.

In spite of the massive expansion and contraction of foreign investment in Mongolian businesses, private international mining company spending on their own ventures has kept the GDP from shrinking even though growth has slowed. The exponential growth that started after the 1997 Mongolian Minerals Act peaked in 2013 at $12.583 billion, a 17 percent growth rate, but was followed by a downturn in GDP with growth rates slowing to 2.3 percent in 2015.

The Oyu Tolgoi mine in the South Gobi. Photo by The Northern Miner.

One such company is Turquoise Hill Resources Ltd., a subsidiary of the Canadian Ivanhoe Mines. It announced a $4.4 billion investment in underground development at its mining sight Oyu Tolgoi on December 14, 2015. Estimated to be the world’s third largest reserve of copper, Turquoise Hill originally invested $6.2 billion in 2013, after years of exploration and analysis, to begin production.

The 2013 Mongolian GDP by Sector as reported by the Mongolian Embassy to the United States. Click to see full economic report.

The 2013 Mongolian GDP by Sector as reported by the Mongolian Embassy to the United States. Click to see full economic report.

These investments, and others like them, have helped and continue to be a vital part of the Mongolian economy. In 2013, mining made up 16 percent of the GDP and the exportation of copper, gold, and coal made up 65 percent of exports in 2012.

In spite of goals to bolster the economy, the Mongolian government has not opened the floodgates to capitalist investment in such a way that would allow foreign corporations to lay waste to the Mongolian countryside, people, and economy to benefit their bottom lines. The emphasis is on sustainable and fair growth.

In order to include Mongolian interests in mining decision making, the Mongolian government and Turquoise Hill spent five years negotiating the Oyu Tolgoi Investment Agreement. The agreement states that the state has a 34 percent equity stake in the mine with the ability to renegotiate their ownership to 50 percent as soon as initial investments have been recuperated.

Additionally, the agreement holds the investor accountable for regional economic development, adhering to national and international environmental standards, contributing to national infrastructure, maintaining a workforce that employs mostly Mongolians, and investment in the education of the Mongolian people.

Leveraging the Oyu Tolgoi mining contract with Turquoise Hill has allowed Mongolia to begin developing more evenly than some of its resource rich peers, who sold extraction permits heedless of local peoples’ needs and health, such as Ecuador. In creating stipulations that require the mine to be staffed 90 percent by Mongolians, with 50 percent of engineers being Mongolian citizens within the first five years of operation, holistic development is at the center of project.

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Mongolian GDP per capita from 1960 to 2015. Click an image for an interactive graph.

As a result, GDP per capita increased, poverty rates decreased, and unemployment rates shrank. Since the beginning of development at the Oyu Tolgoi mine in 2011, GDP per capita has grown over 800 percent. The GINI Coefficient, a measure of income distributions in which a value of 0 represents perfect equality and 100 represents absolute inequality, Mongolia is rated a 36.5, a ranking very similar to that of China.

The strength of the Mongolian togrog declined sharply in 2016 in relation to the U.S. Dollar.

Recently, however, growth has not been as impressive as it was in 2011 and 2012 during which GDP growth was in the double digits. In 2015, growth slowed to 2.2 percent. This has in turn caused the Mongolian currency, the togrog, to plummet in value.

Many economists blame Mongolia’s economic downturn on changes in the slowing Chinese economy. China, which is the destination of 80 percent of Mongolia’s exports, has decreased its demand for commodities like copper and coal which has driven down international commodity prices significantly. This serves as a double blow to the Mongolian economy because China is not buying as much and prices are falling in the international marketplace.

Because of slow growth and a faltering Chinese economy, investors who were drawn to invest in the Mongolian government due to the profitability of mining, have quickly sold government bonds, raising the supply of the currency, and further exacerbating the devaluing of the togrog. In order to mitigate these affects, the Mongolian central bank raised interest rates to 15 percent in August. Theoretically, this will curb currency depreciation by incentivizing investors to invest again, which will increase demand for Mongolian currency. But, for now, the strength of the togrog is still a major source of concern for Mongolia.

Regardless of its economic impacts, mining has had some secondary, unintended negative affects on the Mongolian people and environment. As the economy grows, due in large part to the mining industry, there exists an unrivaled concentration of wealth and opportunities in the few cities and mining towns in Mongolia. As a result, there has been a rapid increase in levels of urbanization.

This population shift is common in developing countries because many city and mining jobs are more productive and therefore more profitable than agriculture.

A nomadic herder tends to his herd of yaks near Bulgan Soum in northern Mongolia.

A nomadic herder tends to his herd of yaks near Bulgan Soum in northern Mongolia.

While this trend is the norm in many developing nations, Mongolia’s rich cultural heritage is based in its traditions of animal husbandry and nomadism, which are increasingly viewed as economically uncertain and therefore undesirable ways of life. The increasing frequency of unusually cold winters, called “zuud,” are intensifying movement to urban areas as herds die off on the ice covered steppes. These extreme weather conditions have been attributed to pollution and its affects on climate change.

To move to the city, many families sell what remains of their herds, which have traditionally served as a source of food in the form of meat and dairy, clothing made from the wool of sheep and goats, and even fuel from manure to ward off the frigid winters. Since so many herders have relocated to Ulaanbaatar in particular, the outskirts of the city are crowded with “gers,” traditional felt tents, that lack running water and proper plumbing.

While these ger areas are difficult to manage in the summer months, it is during the winters, when low temperatures average around -28 degrees Fahrenheit, that real problems arise. In order to keep warm and cook, many former nomads living in gers burn coal and wood. Air pollution is so bad in the colder months that it exceeds the World Health Organization’s most lenient standards by 600 to 700 percent.

This creates a spiral of urbanization. As more nomadic families leave the countryside and gather in mining towns and cities, pollution increases thereby worsening and increasing the frequency of hard winters, forcing more families to trade their herds for mining or manufacturing jobs.

Mongolian boys participate in the horse race portion of Naadam, a traditional holiday that celebrates the Mongols' nomadic roots.

Mongolian boys participate in the horse race portion of Naadam, a traditional holiday that celebrates the Mongols’ nomadic roots.

Without intervention, urbanization could potentially lead to the disappearance of the nomadic traditions that have inhabited and characterized the region for over one thousand years.

South Korean Brain Drain and Its Potential Impact on Economy

Teamwork and Leadership with education symbol represented by two human heads shaped with gears with red and gold brain idea made of cogs representing the concept of intellectual communication through technology exchange.

When I first came to the United States with a student visa eight years ago, I dreamed of working in the states because my friends and family members had been talking to me about how America is the land of opportunity. Yet, it is very interesting for Koreans to view how the United States has more opportunities than Korea because South Korea has had lower unemployment rate than the United States has had by having the unemployment rate of 3.2% in 2008.

Just looking at data on 2005, South Korea was ranked as the number one country to have the largest population of students studying abroad in the states. According to an article in Radio Korea in 2006, the U.S. had 117,755 Korean international students. Furthermore, the article states how most of South Koreans wanted to live and work in America between 2005 to 2006.  This sentiment indicates how many Koreans (either students or workers) regarded the United States as the economic powerhouse where it was very desirable to leave their homes.

Though South Korean youths dreamed about immigrating to the United States, there was a problem. For countries with low birth rates, it is advantageous to attract intelligent and talented foreigners to expedite countries’ development. In case of South Korea, the foreign workforce in the country has been concentrated in manual labor, which does not require high education background. Does the allocation of foreign workers in manual labor mean that South Korea has a high birth rate? No, the World Bank Statistics in 2014 indicates that South Korea has  suffered from low birth rate of 1.21 children born per women.

With low birth rate and less welcoming of educated workers, South Korea should have a great education to promote R&D. However, there is an indication where the  intelligent and talented Koreans are avoiding to work in their homeland when they are getting PhD through studying abroad. According to the Korean Institute for International Trade report on 2006, South Korea had brain drain of 1.4% from 1990 to 2000 and it has not been getting better at all.

Why would the students be hesitant to go back to their country? Is it economically bad to go back to Korea? To answer this, it is important to compare Korean economic history between 1990s and today because the change in economy and social consciousness may be the reason for the brain drain.

Until the Asian financial crisis in 2007, South Korea was having the prime time of its economic prosper. According to the article Finance and Growth of Korean Economy from 1960 to 2004 in Seoul Journal of Economics by Shin-Haing Kim, the political shift from military despotism to democracy made better environment for Korean economy to grow. The democratization of politics in 1987 fostered economic liberalization and brought higher wages. In 1996, South Korea became the member of OECD (Organization for Economic Cooperation and Development) by meeting the requirement of having enough income per capita.

Despite the increase in wages ensured Koreans to have high hopes for further economic growth, Chaebol economimfiredy ultimately triggered South Korea to fall into Asian financial crisis of 1997. Chaebol (재벌) is a unique economic faction in Korea that is equivalent to family owned conglomerate. In the 90s, the government favored Chaebols and started to implicitly guarantee loans for them. In the essence, the government guided the fund allocations towards Chaebols by favoring them; the process of non-biased surveillance and evaluation of risks was skipped. Where the loans should have been granted equally to small business owners and firms, the loans were concentrated to Chaebols. In turn, the Chaebols became too big for the government to bailout when they were in debt. Consecutively, the foreign investors lost confidence in the ability of Korean economy to protect loans and many loans were withdrawn. As a result, big Chaebol corporations such as Hanbo, Sammi, Jinro, and Kia defaulted and the government had no power to bail them out. With the Chaebols fallen, South Korea faced a great amount of debt and South Korean government reached out to International Monetary Fund for financial remediation.

In 1998, South Korea had a record low GDP growth rate of -7% and it seemed that all hope was lost. However, Korean people rose up together and voluntarily accumulated 227t of gold to recover from financial crisis. According to an article in Korea Daily, the Koreans at the time submitted their luxury assets like gold bracelet and wedding rings to support their homeland to get out of the crisis. Though this campaign was not the main source of Koreans to escape from crisis, South Korea was able to pay the debt and interests to IMF  one year earlier than it was expected to.

Entering 2000s with free of IMF debts, South Korea has emerged as one of strongest Asian economic hubs alongside of China and Japan. From 1998 to 1999, the GDP growth had a miraculous increase from -5.7% to 10.73% according to data listed on The World Bank. From 2000 to 2015, South Korea’s GDP growth in 2000s is recorded to be 4.25% in average, which is bigger than the average United States’ GDP growth in 2000s (1.929%). Though the export heavy economy of South Korea has been showing slow growth, the unemployment rate has been low as 3.5% in 2016. However, the surviving Chaebols still assume a great power in economy and politics in Korea.

Economy definitely has gotten better for South Korea. However, the students who received doctorate degrees overseas state that they prefer staying outside Korea due to the disadvantageous circumstance they face as they get back. Mostly, the brain drain (phenomenon of talents emigrating into other countries) in South Korea is shown by the engineering and science talents migrating into the United States. According to Meil Business Newspaper’s analysis from the 2016 report of American National Science Foundation, 65.1% of Korean international students with doctorate degrees in engineering and science favored to stay in the states.  MBN also interviewed one of the international students who recently received a doctorate degree in engineering from Stanford. He said, “If I return to Korea, I may have to say permanent good-bye to my family. There are no universities offer me to be a professor and the jobs offered by corporate labs are all far away from the main city. I rather try to get a job at the U.S. defense company so I may get a citizenship. I know I may face racism, but I think being a second citizen is better than having no place in Korea”.

According to Radio Korea, international students with doctorate degrees in engineering/science leaving South Korea has increased from 2006 to 2016 by 170%. Yet, staying in the United States can often pose more problems for the Korean talents.rate-of-visa-sponsorship In order to work in the U.S., the international graduates need to apply for jobs that sponsor working visas, and it is not an easy task. According to myvisajobs.com, the rate of U.S. companies granting visa sponsorship to foreigners in 2013 was roughly 55%. In other words, only the half of total international graduates may work in the states legally. In addition,  obtaining employment as a foreigner in the U.S. is a very painstaking process. First, the foreigner needs  Permanent Labor Certification(ETA Form 9089). Then the foreigner needs an Immigrant Petition for Alien Worker(Form I-140). And finally, the foreigner needs an Adjust of Status to a permanent resident of the United States(Form I485). It is definitely not an easy process to go through. image_readtop_2016_661638_14743718132619564

Despite this not-so-favorable employment condition in the United States, the South Korean engineering/science talents desire to stay in the U.S. after getting doctorate degrees because the Korean academia does not socially welcome them . As stated in the interview above, becoming a professor in Seoul is extremely difficult for Korean international graduates. To begin with, the Korean work space culture often repel the international graduates. According to the book The Korean Mind by De Mente and Boye Lafayette, Korean workers inside Korea value the concept of “Anshim” or 안심. Mente and Lafayette describe “Anshim” as a “peaceful heart” state of mind that is developed from Buddhism and Confucianism. Though this concept is about finding peace in mundane, it also reflects how close-minded the Korean people are. Mente and Lafayette further comments on this state of mind in their book that “Anshim” dictates Korean language, etiquette, ethics, personal relations, and even business relations. For “Anshim” state of mind, irregularity is a very negative force. For the case of talents returning with doctorate degrees overseas, those talents are the irregular force that will invade the safe space of academia to the professors in Korean universities; the degree earners come back with American demeanor and suggest ideas that are not common in Korean academia. In turn, the Korean professors will outcast the foreign doctorate degree earners; this creates the similar discrimination as racism in the United States.

Furthermore, becoming a researcher in Korea is not profitable to the U.S. graduates due to poor wages. For example, the U.S. offers $80,000~$90,000 as the first annual income but Korea offers about $35,707 (converted from 40,000,000 Korean Won). For the less wages and cultural discrimination, Radio Korea criticizes Korea for not providing solution to these returning doctorate degree earners.

Interestingly, the amount of Korean international students in the U.S. has decreased over the years, contrary to the concern of the brain drain and falling demand in international students’ willingness to return to Korea. I compared the statistics of U.S. Immigration and Customs Enforcement report on 2014 and 2016. Between those years, the percentage of Korean students studying abroad in the U.S. drops year by year. The Financial News (Korean news agency) also has reported that the amount of U.S. dollars Koreans spent on studying abroad in the U.S. decreased from $1,920,000,000 on 2013 to 1,570,000,000, which is 18.1% decrease over the three-years period. According to its statistics, the Korean international students fell by 20% from 2011 (262,465) to 2015 (214,595)  because there are no longer additional merits the international degrees offer to students who strive to get jobs in Korea. According to the Korean Ministry of Employment and Labor, the labor market is not favorable to the student population. In 2013, the ministry stated on an article in Ulsan Daily that the total unemployment rate was 4% but the youth unemployment rate (15 to 29 years old) was 9.1%. The ministry sees the rate of achieving higher education as the problem. By 2011, 72.5% of youth work force had university degrees; thus, the youth work force became overqualified for most of jobs offered. This was the same for the returning studying abroad students as well. Since there has been an increasing trend of students who studied abroad from 2006 to 2011, the international degrees lost its values; the supply increased but demand fell down.

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Besides the increasing supply of international degrees losing its value, the United States’ sentiment on foreign workers affect the decrease in value of degrees outside Korea. According to the interview Dong-A Daily (Korean News Outlet) had with a Korean employer in the states, he said: “The U.S. government demanded answers for my decision to hire a Korean international student. They came to the office very frequently to find any wrongdoing of my company just because I hired non-U.S. citizen.” According to Dong-A, there are similar cases in which the employers made a policy within the company to only hire U.S. citizens because they want to avoid any trouble. This sentiment is also clearly shown in this presidential election. The policies regarding international students have been tweeted and stated by both candidates.

As introduced in Little Book of Economics by Greg Ip, ideas, population, and capital are crucial for economic growth. On this issue of global talents immigrating and emigrating, ideas and population are directly influenced by those talents. As mentioned above, it is a great strategy for developed country with low birth rate to welcome more global talents and acquire jobs to make up for the low birth rate and further innovation. Yet, a recent phenomenon of global talents returning to their native countries after acquiring degrees and doctrine makes Korean problem bizarre. According to an article in the Huffington Post, the “People born in developing countries move to well-developed ones . . . but with the passing of time, some of them are willing to go back to their native country ‘to breed in the area where they were born'”. Just as Huffington Post describes with many international students from China, Kenya, and Italy, Korean students should also feel more confident to use the knowledge they have acquired from the U.S. universities in their own native countries.

The highly intelligent Korean international students not returning to their homeland can be damaging to Korean economy because the innovation may slow down. %ea%b8%80%eb%a1%9c%eb%b2%8c-%ec%9d%b8%ec%9e%ac%ed%8f%ac%eb%9f%bc-2016-%ec%9c%b5%ed%95%a9%ed%95%99%eb%ac%b8-%ed%91%9c%ec%a4%80%eb%b6%84%eb%a5%98%ed%91%9c%ec%97%90-%ec%97%86%eb%8b%a4%ea%b3%a0In any market competition, research and development are very crucial. Yet, the phenomenon of South Korean students who have potential to advance the R&D in their homeland getting discouraged by the work environment is definitely an issue Korea needs to solve in the future. The prime reason for the bad environment is the Korean university boards. According to the Hanguk-Kyungjae (Korean economics newspaper), Korean universities lack interdisciplinary system. Even though the Korean board of education publicly promoted interdisciplinary education, the professors in academia thought otherwise. The article describes that the professors think if professor A in one field of study tries to fuse his or her field of study with professor B’s field of study, they think of this phenomenon as an invasion instead of innovation. This view clearly has to do with aforementioned Korean state of mind, “anshim”. Due to the fact that “anshim” culture makes the academia to be very close minded, interdisciplinary education only exists as a noun. This problem is what repels the foreign doctorate degree earners as well. The students who earned their doctorate degrees in the United States are very used to interdisciplinary studies that they may want to research further when they become professors in Korea. However, the cultural state of mind hinders their motivation to come back and contribute to the close-minded academia.

The Hanguk-Kyungjae further sees this exclusivity problem in Korean academia as the main factor of not-returning intellectual talents who have acquired degrees overseas. Although South Korea has experienced tremendous of economic prosperity ever since the end of the Cold War due to innovative technologies in electronics and automobiles, the experts see that innovation is slowed down because of the exclusive culture in academia and it will slow economic growth even further. Though the number of Korean international students are declining, the brain drain issue is critical in South Korea because it will eventually slow down the competitiveness of Korean products. Though those are my worries, the future is still unknown because of the youths in Korea. Every year, the youth population are moving in the direction of becoming more open-minded than the generation before them. If Koreans continue to try, the struggle for returning foreign degree earners might meet its end. Culturally, Korea has definitely become more progressive compare to its very conservative past. Just as it is a remedy for everything, time may be the answer for the perception Korean academia has on foreign degree earners; thus, the problem of brain drain may be over in the future.

The Student Debt Crisis: How Your Degree is Causing Economic Unease

Part One: The Student Debt Crisis and How We Got Here

Pursuing a degree in higher education is often romanticized. The mentality has remained that a job is guaranteed as long as you sacrifice anything and everything for a bachelor’s degree, and ideally, a master’s degree or two. Of course, there are valid arguments for this, and for the most part, it’s true. Over time, all the financial strife will be well worth the wait, as education is an investment into the future.

But what happens when the investment doesn’t pay off? It is not uncommon for students to have a period of unemployment post-graduation, which results in ignoring those looming student loans. In addition to this, we all know the job market is still on shaky ground, and not all of us will find something that actually pays us enough to survive.

According to Student Loan Hero, the total U.S. student loan debt is up to $1.2 trillion, with 40 million borrowers, and $29,000 being the average balance. Why have we allowed this to become our reality? Despite a generous financial aid package, even I fit into this statistic. To sleep at night, I let myself believe, “You’re in USC Annenberg, and you’ll be fine.”

Unfortunately, this is the mentality many students have. A respected degree from a prestigious university helps, but nothing is guaranteed. Student loan debt is often blamed on private universities, but cuts in state budgets have led to a rise in tuition at public universities as well. Additionally, private universities sometimes have more scholarships than public universities can afford to offer. It is difficult to argue that private establishments are not the worst offender, because of course they are. However, it is a case-by-case basis (for example, the UC’s had little to no scholarships available to me, therefore I would have a similar debt situation graduating from UCLA.)

At the end of the day, it is better to have a degree, but the federal government’s over eagerness to give out student loans has led to a serious problem. According to Business Insider, Bill Ackman is convinced the outstanding balance in student debt could trigger the next market crash. Ackman claims that the government has loaned out too much money, which is true. “Student-loan delinquencies, in red, have risen as late payments in other types of payments have dropped,” according to a study by the Federal Reserve Bank of New York. The student loan debt crisis is being compared to the housing market crash. Wall Street kept saying “the housing market is stable, there’s nothing to worry about.” Throwback to 2008 when our country faced the worst recession since the Great Depression. Ringing any bells? We all know history repeats itself, so why is it so hard to connect the dots, and realize predatory lending back then, isn’t so different from our current situation?

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To clarify, it is a tad exaggerated to say the student loan debt crisis is a carbon copy of the housing market bubble. However, the issue is the casual attitude towards loans, credit cards, and OPM in general. Since the 1970’s, the convenience of credit cards and the mentality of “get it now, pay later” has transformed our economy. This transformation was crucial since consumers were encouraged to spend, which drove the demand up, which all in all boosted the economy. Today, without credit cards and the ability to borrow money, our economy would be at a stand still. Nonetheless, student loans are another story. Especially when student loan knowledge is lacking. According to a survey by intuition, two-thirds of millennials who received loans felt they did not have enough information about their loans. 45% of students are not receiving repayment counseling, 47% do not know the interest rates on their loans, and 75% have not been offered an income-driven repayment plan. In summary, college students do not know what the heck is going on. It is easy to point the finger at the students. Obviously, we don’t care about our financial future if the tiny, fine print isn’t read word for word right? Wrong! Student loans are perceived to be far more confusing than they actually are, the repayment process feels much more difficult than necessary. We all know young people are a bit naive, so why would the government or private lenders willingly keep us dazed and confused? It’s like they want us to default.

Additionally, no one is doing us any favors by never capping the amount of money we can borrow. There are measures taken to ensure that students don’t take advantage, but there are too many loopholes. Students are usually given a six-month grace period post graduation. What happens when graduate school is the next step? Paying back undergraduate loans are deferred, the interest goes up, and a few years later, you may be looking at paying off loans for 30 plus years. In some cases, the rest of your life.

Take Liz Kelley, an extreme example of how allowing students to borrow to their heart’s desire is risky business. In the New York Times article “Student Debt in America: Lend With a Smile, Collect With a Fist,” Ms. Kelley admits that she “made her own choices.” Ms. Kelley has $410,000 in debt due to a number of circumstances. Long story short, Ms. Kelley had financial factors such as her autoimmune disease, childcare, divorce, foreclosure, and much more that kept delaying her from completing her education. By the time she finished undergraduate school and eventually graduate school, the interest rates destroyed her ability to pay all this back anytime soon. This story goes to show the “deep contradictions in the federal governments approach to student loans.” There are so many students that are still handed out loans, despite a shaky history of repaying loans in the past. When it is time to pay back the loans, forgiveness is hard to come buy. This is setting students up for failure, and most importantly, the decline of our economy.

The argument is made that those with the most debt have the highest degree, and therefore have the means to pay back loans. In many instances, this holds true. However, according to William Elliot, director of the School of Social Welfare at the University of Kansas, ” ‘even people with only $5,000 to 10,000 [in loan] are still going delinquent.’ ” The Federal Reserve study reveals that the 90-day student delinquency rate has raised to 11.3%. The White House Study attributes this to drop outs or people with lower degrees (who therefore have low wage jobs,) but that doesn’t mean delinquency only applies to a certain group of people. The fact of the matter is delinquency is rising, and the amount of student debt people under the age of 35 must pay back is decreasing economic growth due to lack of willingness to spend.

Part Two: How Student Loan Debt is (Potentially) Crippling the Economy

Millennials are the future of the economy, and yet most are reluctant to be ” ‘big spenders’ .” According to the Los Angeles Times, millennial’s are cautious as ” ‘children of the Great Recession.’ ” However, there is much more complexity to this issue than millennials simply being too frugal (in comparison to past generations.) Student debt is a major deterrent from investing in the future. The graph below (left) shows how people aged 35 and under have much higher student debt rates than past generations. Therefore, buying a house, marriage, child rearing, even buying a car is all postponed. Many students resort to living with their parents, not because millennials are too “coddled” (I promise you no one willingly lives with their parents post grad,) but because ” ‘student loan debt, more than any other kind, contributes to people having less favorable views on their own financial well-being.‘ ”

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The lack of confidence in spending has lead to the slowing of our GDP and overall economic growth. As young people put off buying homes, the housing market slows down. Those who need to sell their homes are unable to, because the young, hip couples are crammed in their minuscule, overpriced apartment. According to a survey conducted by the National Association of Realtors and American Student Assistance, “seventy-one percent of those surveyed said their student loan debt is delaying them from buying a home. More than half said they expect that delay to last longer than five years. ” Additionally, one third of current homeowners revealed that they cannot afford to sell their home and buy another one because of student debt. Something else to keep in mind is that not being able to pay back student debt negatively effects your credit score, and your credit score effects every crucial financial decision in life, such as buying a home. This is probably another reason why the housing market has struggled recently.

(Note: As of May 2016, there was indeed a boost in the housing market. However, this survey was taken in June 2016 and indicates that the housing market is still not as strong as it should be. Everything else in the economy? Sluggish in comparison.)

Waiting to have children till later in life is not the end of the world, but if this continues for too long, our economic future could adversely affected by not having enough young people in the next generation (take Japan or Germany as great examples.) Not saving for retirement could also cause problems down the road. All in all, everything is being affected by student debt, more than economists and the elitist Wall Street “geniuses” would like to admit

Wall Street believes that student debt is a ” ‘fiscal headache rather than a financial risk,’ “ since many loans are backed up by the federal government. Most are convinced that due to this, there is a low chance of another financial crisis if defaults become rampant. However, if the government ends up needing to bailout student loan debt, the $1.2 trillion necessary to do so will halt economic growth, and raise taxes.

The hesitance to refer to the student loan debt issue as “crisis” is the wrong action to take. Why wait for things to get worse when there are ways to fix the problem now? Senator Elizabeth Warren and Attorney General Kamala Harris have made the effort to find solutions, but no one has taken them seriously. Decreasing government loans is not the right move either, as the demand for student loans would stay the same, and private lenders would swoop in and take further advantage of students. Some might say blaming student loan debt for the slow economic growth is pushing it, but why discredit the statistics that are right in front of us? Why ignore the millennials, who are arguably the most important group of people for the future of the economy? It is only a matter of time before this problem thoroughly unravels, and all we will be able to do is say, “I told you so.”

 

 

 

 

 

 

 

 

 

 

Homeownership: Young Adults and the American Dream

Residential investment currently accounts for about 5% of the United States gross domestic product. Considering the US GDP stands at just under 18 trillion dollars, housing is clearly a significant portion of American spending. As a major driver of economic growth, housing indicates the wealth of the people, but since the 2008 recession, it has taken a dip, and it is important to examine why. At 35%, the largest generational group of buyers consists of millennials between the ages of 18 and 34, but since the 1980s, the probability of this age group owning a home has gone from almost 17% to just under 14%. The question now is whether this is a permanent change or if it is just a fluke due to the economic crisis.

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In the early 2000s, credit was very cheap, and this led to banks loaning money to people who probably should not have been given that responsibility. They took this money and bought up homes because they were known as a stable, surefire investment. Eventually, these people struggled to pay back their loans, and the bubble burst, causing banks to suddenly tighten up and be wary of loaning money. This does not bode well for average young adults because they do not have a long financial history to back up their ability to pay off loans. Right now, young adults are also being hit with a plethora of other problems, such as student debt and a flailing job market. The average college graduate in 2015 has to pay back over $35,000, which is more than double the amount borrowers had to pay back only 20 years ago even when adjusted for inflation. What is worse is that 44% of college graduates in their 20s are stuck in low-wage, dead-end jobs. With such shallow income-growth trajectories, millennials are more focused on paying current bills and making rent every month than saving for their future home.

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This goes against the fundamental “American Dream,” which is a traditional idea consisting of three entities: job, family, and home. The hope is that with hard work and determination, one can acquire a high-paying job and eventually purchase a home for his or her family. As a result, young Americans have set life goals around hitting milestones to put them on this path, but as illustrated above, this “dream” is increasingly becoming out of reach.

The share of young homeowners has fallen steadily for the last thirty years, which means many millennials have taken up a new, or perhaps old, residence: living with their parents. For the first time in 130 years, the most common living arrangement among millennials is sharing a home with their parents, and over one-third of this generation is choosing to do so. Much of this can be blamed on the recession. Young adults do not have the money for a down payment or the continuous stream of bills stemming from mortgage and upkeep. Additionally, the housing market is not making this any easier with its increasing market prices and decreasing number of available affordable homes. Young people say they will move out the day they can afford it, but that day is looking depressingly out of reach.

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For some, this situation is old news. Those who grew up in poor neighborhoods have always been less likely to be motivated to leave their hometown. These young adults probably will not go too far for college, and they are stuck doing low-wage jobs that, even in the long run, will not provide enough income for them to save and eventually spend on their own house. Those in this group are more likely to live with their parents and may be providing for the family just to make ends meet. Their situation is dire, and they are bound to a place that cannot allow them to grow and prosper.

On the other hand, take a look at those who have the greatest chance of being able to afford their own home. These include high-achievers who tend to come from rich backgrounds, move away for college, and settle in popular cities with a concentration of jobs like San Francisco or New York. Compared to the first group, this group has drastically more resources and therefore more freedom to set their own priorities. However, they are still not buying homes, but this could actually signal a cultural shift and a delaying of the whole process. There are many rational reasons why a young person of decent money would want to wait to splurge on a home, and it is possible this is due to a change in mindset.

For one, the rent in the cities mentioned above has reached astronomical, and for many, unaffordable levels. In both New York and San Francisco, the average square footage of a one-bedroom apartment is 750 square feet. This is a comfortable size for at most two people. The median rent per month for this apartment is $2,200 in New York and an outrageous $3,600 in San Francisco. This means that per year, those who choose to live in these cities are committing between $26,400 and $43,200 to solely rent. For many, moving to these cities is not so much a choice as it is the best way to find a career in their desired industry. New York is a financial district, and San Francisco is the land of the start-ups. There are definitely more job opportunities, but as a location gains popularity, it also gets more expensive. This leaves little room for young adults to save a large enough sum for their own property.

Millennials also have this newfound desire for flexibility, and homeownership does not allow that. Many graduates have the mindset that they will take a job for at maximum a few years and then move onto something else. In fact, it is completely normal for millennials to switch jobs an average of four times in their first decade out of college, and more often than not, this career change also results in a location change. This demands the ability to be mobile, and renting means that once the contract is up, renters can move out without having to worry about finding someone else to take their place. Selling a house requires a whole other set of considerations, such as possible remodeling and hiring an agent in order to get the best price. From this point of view, renting property simply provides conveniences that buying does not.

Consider a newly married couple where the wife works at a large insurance company and the husband is a doctor. This couple has moved three times during their time together: once from college to medical school, again for medical school to residency, and one more time for the husband’s first real job. Throughout the years, the couple has accumulated a healthy sum in comparison to others in their age group, but because of their tendency to hop from place to place, they do not see the point in buying a house. Selling after just a few years does not provide much profit, even in high-income areas, and moving without selling the house does not make much sense. Years ago, it was uncommon for people to move across the country multiple times, so there was not much risk involved when buying a house. For young people nowadays, this is rather commonplace, so they have a totally different mindset than their parents did. Norms are changing, and that means cultural decision-making is changing as well.

On top of this, there is currently a shortage of starter homes, so young people have a very limited set of options. Housing starts went way down after 2008, and it is slow going on its journey back to pre-crisis levels. Instead, new construction is now being focused on the luxury side, so homes that used to be entry-level are now priced above what young adults can pay. Because of increasing expectations, the new supply is being adjusted to fit the demand. Getting fancier also means getting more expensive, which only prices out the people who actually want to purchase their first home. This is clearly a vicious cycle.

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Money is a driving factor in most decisions. It hides behind other reasoning and provides concrete limits, but maybe it should not be the first thing people blame for the decline in homeownership. Perhaps it is simply a change in the mindset and priorities of millennials that has veered tradition off course.

Product sharing is an idea that can only exist in modern age companies because of not only technology but also the cultural shift mentioned above. One example is Zipcar. It boasts over 700,000 members, which makes it the largest car-sharing company in the world. Members are able to borrow these cars from various locations, and Zipcar covers gas and insurance. These conveniences are highly appealing to many people because this eliminates two large worries associated with owning a car. There is also no need to search and pay for long-term parking, which can reach exorbitant levels in big cities. If people do not want to worry about parking at all, they can turn to Uber or Lyft and simply pay for the ride itself. This “sharing” business model has been repeated across industries, including Airbnb for housing, Rent the Runway for clothing, and Spinlister for sports equipment. The list goes on. Sharing companies are now commonplace, and they are born out of a newfound prioritization of convenience and flexibility.

Regardless of the cause, the decline of homeownership has very real implications, and it is telling about the health of the economy. High levels of homeownership signal a certain confidence among buyers. They believe they can make good on payments, and this means they are earning a comfortable wage. Typically, a family’s largest purchase is their home, and home purchasing decisions are telling of the nation’s economic development. Families exhibit their buying power through what home they choose to purchase, but if they no longer have the desire to buy a home, this affects other industries as well. For example, urban planners who map out entire neighborhoods of homes suddenly have less demand, and construction workers have fewer jobs as a result. There are also real estate agents and others who have fewer sales to make, and the list goes on. Changes in the housing market no doubt affect the greater economy, which is why the decline in homeownership is so alarming.

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At least at this stage in their lives, millennials simply place less of an emphasis on actually owning items than past generations have, and this translates to a decrease in young adult homeownership. However, this does not mean that young adults do not hope to one day own their own homes. Among millennials, 65.3% still associate homeownership with the American dream, and more than half of all millennials expect to buy a home within the next five years(USAToday). Their plans may be delayed, but there is definitely still a checkbox next to homeownership that they hope to tick off within their near future. The American dream lives on; the millennials just need more time to get there.

Love and Hate of a Rising China: U.S. or China, Which is More Appealing?

“I miss the price of my hair service in Beijing,” said Yuyuhou Li, a graduate student from the University of Southern California studying Strategic Public Relations, after her recent pricy experience in Korean Town. The total cost of having her hair dyed was “about $280 including tips.” In other words, having her hair dyed once in Los Angeles equals to three hair dyeing appointments at a similar salon in Beijing.

No wonder it seems that living in America is quite expensive, at least in most Chinese people’s eyes. It is well acknowledged that China is rising at an impressive pace. From ranking second in the world in nominal GDP to pulling itself from poverty at least in its southern coast, to the “Made-in-China” label being used worldwide, to the grand hosting of the Beijing Olympic Games. Even the great Uncle Sam started to fear the rising eastern star, going so far as to come up with the China Threat Theory.

Considering all of this, can we safely draw a conclusion that living in China is more appealing than living in the States, especially for a young and upcoming generation? The following aspects might give you some insight.

Living Cost & Purchasing Power Parity (PPP)

Pick up an apple from a Walmart in Shenzhen, one of the most developed coastal cities in China and read the price tag carefully. Those lovely red apples are sold at ¥4.98 (=$0.75)per 500g. Now let’s move the scene to a Walmart in Los Angeles, where a large price tag reading $2.47/lb ($2.24 per 500g) sits on top of those made-in-America apples.

It is not uncommon to see an almost triple price differential between consumer products made in the most developed cities in China and those produced in America. A box of 12 cage-free eggs are sold at ¥12.9(=$1.93)in the Shenzhen Walmart, while eggs in the LA Walmart are more than double that price. Not only groceries, but also basic necessities such as toilet paper and laundry detergent suffer from the huge price gap. For example, Tide detergents of the same size in both China and the US do not break the spell of the three-times price difference.

Both Shenzhen and Los Angeles are coastal cities with a high volume of port trade and technology-intensive industries. However, according to Numbeo’s comparison, people would need around ¥35,143.95 ($5,266.80) in Los Angeles to maintain the same standard of life that they can have with ¥21,000.00 ($3123.60) in Shenzhen (assuming you rent in both cities). As the chart below shows, Shenzhen’s living cost is higher than Beijing’s, but still falls way behind Los Angeles’.

 

cost-of-living-index

(Source: Numbeo)

In terms of the price gap among different countries, Purchasing Power Parity (PPP) plays a vital role in evaluating the living cost in the respective country.

PPP is arguably more useful than nominal GDP when assessing a nation’s domestic market because PPP takes into account the relative cost of local goods, services and inflation rates of the country, rather than using international market exchange rates which may distort the real differences in per capita income.

According to the International Business Times, China’s economy surpassed the U.S. in purchasing power for the first time in 2014 and continued to rank in first place in 2015.

ppp

With the same amount of money, you can enjoy more goods and services in China than in the United States. For example, Yuyuhou Li can buy the same detergent and enjoy similar hair dyeing services in both Shenzhen and Los Angeles; but in China, where labor and rent are lower, dyeing her hair and purchasing basic daily necessities cost much less than she pays in the U.S.

This round, China wins America by a huge margin.

Per Capita Personal Income

“If I am making money in dollars, living in the United States won’t be that expensive,” said Yutian, Li, a graduate student studying in USC with a major in computer science. There’s no doubt that computer science is one of the most profitable jobs in the United States. But earning dollars and spending yuan is very tempting in the fact that the exchange rate between yuan and dollar is more than 6:1.

“You earn a lot less money in China, but you can save more,” said Robert Little, who used to teach English at the University of International Business and Economics in Beijing. “America is much more expensive to live in because cost of living is much higher,” he added.

The National Bureau of Statistics of China reveals that per capita personal income in Shenzhen was 73492 yuan (=11010.45USD) in 2014. Also, the latest data revealed by the Shenzhen survey group of the National Statistics Bureau shows that the average disposable income of Shenzhen residents was 30524 yuan (=6,868 USD) in 2015. The latest data shows that per capita income in Los Angeles County is 42,042 USD, almost 4 times higher than in Shenzhen.

If we divide the items sold at the Walmart in both cities by the per capita personal, Interestingly, the percentages are so similar.

  Los Angeles Shenzhen
Apple 0.006% 0.007%
Egg 0.01% 0.018%
Toilet paper 0.03% 0.03%
Tide detergent 0.02% 0.03%
Hair dyeing 0.67% 0.82%

But what causes Los Angeles’ cost of living to run ahead of Shenzhen’s? Although the overheated property market in China has driven the prices up and up, rent prices in Shenzhen are 50.93% lower than in Los Angeles. “My living cost per month is about $3,000,” said Jake Davidson, a senior from Los Angeles studying accounting at USC.  According to Jake, he has to pay $1600, almost half of his living cost, for his rent. In that case, people living in major cities in the United States such as Los Angeles and New York actually suffer more renting pressure.

However, Shenzhen’s hair dyeing services are at a higher percentage than Los Angeles’, which meets a current trend of more expensive service industry in China’s big cities. 

Opportunity Matters   

“I prefer to work in the United States,” said Caixin Yang, a sophomore who comes from Chongqing City and now studies economics in America. For her, the United States has more advanced and mature financial systems and markets. “China is under transformation and everything is in a mess,” she said.

The same answer goes with Yuyuhou Li who thinks highly of a  well-established public relations career path in America. “Although the living cost is really high here especially in LA, working in the United States represents a more stable life,” she added.

In spite of skyrocketing living cost especially the rent in the United States, Chinese students are rushing to pursue education in the United States, in the hopes of receiving better a education and a better life in the future. The most recent figures, from the 2014-15 academic year, show that 304,040 international students in the US hailed from China – far more than from any other country.

education

An estimated number of 2.64 million Chinese have moved overseas to study since 1978, but only 272,900 students returned to China in 2012, according to the Ministry of Education. A 2014 report by Oak Ridge Institute shows that 85 percent of the 4,121 Chinese students who received doctorates in science and engineering from American universities in 2006 were still in the U.S. five years later. The stay rate had been 98 percent a decade earlier, which actually marks an improvement. This situation results in a massive loss of talent for China.

What entices Chinese students who receive education in the United States to choose to earn a life in a foreign country even though China has become the second largest economy? Free work culture, decent income and better welfare treatment could be the answer.

“High living cost is not something I value if I choose to stay in the United States or in China,” said Yiling Jiang, 23, studying communication management at USC. He values personal development, opportunities, lifestyle, family, and friends when judging which country is more appealing. Not only Yiling, but all of the interviewees agreed that the U.S. living cost is high but not a huge problem. It is the bureaucratic working ethics, complicated relationship (guanxi) and unfair career treatment that decrease the charm of coming back to China.

In addition, as smog worsens, China’s most well-educated have begun fleeing the country. Caixin Yang also mentioned her concern in her interview about the long-lasting severe pollution in some Chinese metropolitan cities such as Beijing, the Capital of China.

Faced with the army of ambitious Chinese up-and-coming professionals, are Americans worried? Yes, they are. Despite current slowing growth rate, plummeting stock markets and a variety of economic challenges that China is facing, Americans are still concerned about economic threats posed by China. The loss of jobs is one of the top three problems that are rated as a very serious problem by approximately sixty percent of the American public, according to a survey in 2015. The other two concerns are the amount of U.S. debt held by Beijing and cyberattacks from China.

u-s-perceptions-of-china-report-03

At the same time, still, a number of Chinese students who pursue degrees in America prefer to go back to China. “China has a lot more potential in development and I am willing to contribute myself in this course,” said Yutian Li.

Yutian admitted that current American life is more attractive in terms of advanced education and systematic career training, but in the future, living in China will be more appealing to him as China’s is speeding up in making itself better.

In light of a rising China, which country is more appealing? There is no definite answer. Living costs are not scary. Opportunity matters most.

The Jumpstart Stalls: How the JOBS Act is Missing on Crowdfunded Equity

Signed into law on April 5, 2012, the Jumpstart Our Business Startups (JOBS) Act aimed to energize startup businesses by leveling the investment playing field. By eliminating a number of the barriers that had previously prevented startups from formally seeking capital be selling equity, the investment game would, theoretically, become a more level playing field—no longer a realm solely inhabited by wealthy venture capitalists.

One problem, though.

The Securities Exchange Commission (SEC) has gotten through six of the seven titles in the JOBS Act, essentially removing all the barriers that had previously prevented startups from selling equity as a means of funding. However, the agency has been unsuccessful in giving individuals the most logical method of investing—funding portals. Consequently, the rest of the act remains in a holding pattern, waiting for potential investors to have a way to access these companies that are now able to seek funding in exchange for equity at any time.

Crowdfunding and Venture Capital

Spawned by the same so-called “collaborative economy” that produced a host of well-known peer-to-peer (P2P) businesses such as Uber and Airbnb, crowdfunding platforms are online portals that (as their name implies) enable startup companies or sole proprietors to seek funding from the masses. Aspiring entrepreneurs to set up pages to market their idea to the public in hopes that enough people want to contribute any amount of funding to help get it off the ground. The big-picture idea behind them is to democratize entrepreneurship by giving all startup businesses the same chance at raising funds, but strictly by donation. Those who contribute to the business venture get nothing in return.

collab economy

Contrast that model with venture capital, in which these same aspiring entrepreneurs go straight to big money organizations that decide whether or not they will invest large sums in exchange for some measure of control over the company. VCs will own a significant percentage of the new company in exchange for funding, often times taking prominent seats on boards as another method of exercising ongoing control over day-to-day business operations. Of course, when one of their companies hits and goes public or is sold, VCs turn their shares into large sums of cash.

Background on the JOBS Act

Signed into law on April 5, 2012 (SEC), the Jumpstart Our Business Startups (JOBS) Act aims to promote economic growth by easing certain securities regulations and encouraging more funding of small businesses. As is usually the case with any sort of legislation, it led to legal wrangling and a stepped implementation that is still not complete today—more than three years after the act was initially signed. Titles I, V and VI essentially opened up new capital opportunities for job creators and were passed right away.

Titles II, III and IV—all of which involve crowdfunding in some way—have proven to be more problematic.

Title II, which was the first to allow early-stage companies to solicit investments without being listed publicly, went into effect September 23, 2013. Essentially, the SEC removed the gag order that previously prevented startup businesses from leveraging the capabilities of the digital age to broadcast to the masses that they’re looking for funding and could sell equity to get it. No longer do they need to be public companies.

Commonly known as Regulation A+, Title IV expanded Regulation A of the Securities Act of 1933 into two tiers: one for offerings up to $20 million over a 12-month period and one for offerings up to $50 million over a 12-month period. The SEC released its rules for Regulation A+ in March of this year, and the modified Regulation A became effective June 19, 2015. Essentially, a company’s funding goal no longer has to be so outrageous that it prices crowdfunding out of the question and requires VC money to participate.

Title III would enable crowdfunding platforms such as Kickstarter and Indiegogo (which the SEC refers to as funding portals) to become startups and equity crowdfunding, but it remains in a legislative quagmire (SEC Q&A).

Potential Impact on Startup Funding

While the JOBS Act has not yet seen all of the equity crowdfunding provisions come to fruition, two of the three major titles related to it are in practice today. Startup businesses are allowed to announce they are seeking funding and can raise up to $50 million in a calendar year from any investors—accredited or not.

From the investor’s standpoint, anyone now has the opportunity to purchase equity in any private company that makes it known they’re seeking funding. While they’d be doing so on a much smaller scale than that of traditional VCs, these individuals no longer face the requirement of making more than $200,000 of income of having $1 million in assets. In short, the entire process has (theoretically) been opened up to the 99 percent (Forbes).

Title/Party of Three

Many of the arguments the SEC was forced to navigate in approving Titles II and IV had to do with protecting investors, since they were altering or removing policies that had long been viewed as safeguards against bad investments. Legislators were skittish about removing the separation between small companies seeking funding and individuals who may or may not have known enough to make informed decisions about investing.

Perhaps paradoxically, Title III involves the funding portals that, in addition to being the enabling platforms behind these investment transactions, could also provide that sort of third-party guidance. Of course, they could also become de facto gatekeepers, deciding who “gets to” invest in certain companies. As the debate continues, the two most prominent potential funding portals watch from the sidelines, waiting to see what shakes out but with very different levels of interest.

Per an August article from gaming publication Polygon, Kickstarter expressed no plans to enter the equity crowdfunding fray. Indiegogo, however, has expressed interest since the SEC released its Regulation A+ rules early this year. While the two are direct competitors in “traditional” crowdfunding, Indiegogo positions itself as being broader in scope. Therefore, it is willing to be more aggressive in its methods for enabling entrepreneurship any way and anywhere.

Indiegogo_logo

“Indiegogo will have done its job when Silicon Valley is no longer perceived as the epicenter of entrepreneurship,” co-founder Danae Ringelmann said. “It’s not, and our job is simply to catalyze the entrepreneurial spirit that exists everywhere.”

The company is also more aspirational when it comes to this idea of democratizing funding. Ringelmann’s co-founder Slava Rubin didn’t shy away from the idea of leading the crowdfunding equity charge when reacting to the SEC’s Regulation A+ announcement last March (Fast Company).

“The balanced regulations announced yesterday will not only protect investors but allow anyone to invest in the ideas they believe in,” Rubin said. “Our mission at Indiegogo is to democratize finance, and we are continuing to explore how equity crowdfunding may play a role in our business model.” (Crowdfund Insider)

Unfortunately, until Title III finds its way into practice, Indiegogo’s vision for completely open, equity crowdfunding will remain solely aspirational.

Wider Economic Implications

With the country only a few years removed from its worst financial crisis since the Great Depression and employment numbers still lagging, the JOBS Act passed through Congress with nearly full bipartisan support. Small businesses (defined as having fewer than 500 employees) accounted for half of all US employment in 2012 and were clearly seen as the key to continued economic recovery.

small biz growth

Locking half of the economy out of being able to draw on peers for funding doesn’t seem to make much sense when the goal is growth. Furthermore, when more than 70 percent of the country’s GDP is based on consumption, while investment accounts for a little over 10 percent, opening up more opportunities for people to invest their money seems like a no-brainer.

Additionally, with the Fed keeping interests at their current levels, spending and investing is exactly the type of activity the government is encouraging. Federal regulators want investment in small business because it’s leading the economic recovery.

2011_small business

Yet, the current implementation of the JOBS Act still doesn’t include the one piece that is likely to organize this more open investment environment into a viable alternative to the current, VC-driven establishment. But if it does come into practice, there appears to be a challenger on the horizon, brandishing a bright magenta logo and millions of potential investors.

The 99 percent is ready to change the game as soon as the SEC can get out of the way and let them. Same old, same old in the startup game…today.

Conquering the world with wine

Finnish-French Marketta Fourmeaux accomplished her dream of having her own winery in California. What else than a dream is needed to make a winery successful?

 

Näyttökuva 2015-10-09 kello 15.55.04

 

An oddball. When Marketta Fourmeaux moved to Napa Valley, California, in 1988, she heard she is an oddball. That was probably a nice way to put it. A blond in her mid-thirties, a mother of two, coming from France, born in Finland, said she wanted to buy a vineyard to make her own wine in California.

”Some people would have rather talked to my male dog than me!” Fourmeaux says and laughs. ”There were not many foreign winemakers nor female winemakers in California back then.”

Now, 30 years later, Marketta Fourmeaux is the only Finnish female wine-maker of Napa but no longer an oddball. California is a growing wine area attracting international investors. The U.S. is both consuming and exporting more and more wine – situation totally opposite to that of old wine empire France.

Fourmeaux has created two wine brands in California: Château Potelle and Marketta Winery, and now people pay close attention to what she says. She is a board member of The Wine Institute, the largest advocacy and public policy association for California wine, and the ex-president of the Mount Veeder Appellation Council.

She came to the U.S. well prepared.

 

Fourmeaux has a master’s degree in economics from Finland and a diploma in enology – the science of wine and viticulture– from France.

In 1976, one single happening in Paris changed Fourmeaux’s life and that same happening shook the world of wine. The Judgement of Paris, a prestigious blind tasting wine competition, rated California Chardonneys and Cabernet Sauvignons over French comparisons.

This was devastating news in France. Fourmeaux was then married to a Frenchman and evaluated wines for the honorable ”Institut des Appellations d’Origine”, the core of the qualifications of French wines.

A group of French wine producers asked her to travel to California to find out what is happening in its’ vineyards. Years earlier she had been an exchange student in California and her English was fluent. Fourmeaux agreed to travel to Napa. Later she sent a telegram home. It said: ”Looks good. We’ll stay.”

 

Wine is not an easy business. Making a vine grow is a basic form of agriculture, but farming vine to produce wine is much more complicated than farming vine to sell grapes or raisins. The quality of soil, the amount of rain and sun as well as the temperature all play a role in setting the taste and the quality of the final product. It is impossible to control nature. Fourmeaux says that the draught in California has not yet affected Napa Valley’s wine production but she is afraid of what the future brings. If northern California gets dryer, both the volume and the quality of its’ wine may decrease.

Now California produces 90 percent of the wine made in the U.S. The production, consumption and exports of Californian wines have all steadily grown during the time Fourmeaux has been here.

When she came much of the wine making was in the hands of big companies producing industrial bulk wine.

The prohibition law of the 1920s and 1930s had a long lasting effect on the wine culture of the U.S. It swept away many old vineyards, and later quality vines were replaced by lower-quality vines that grew thicker-skinned grapes, which could be more easily transported.

Much of the knowledge of artisanal winemaking was lost.

When Fourmeau bought the 273-acre estate Mount Vedeer in Napa Valley she planted new vines  – Cabernet Sauvignon, Zinfandel, Syrah, Chardonnay and Sauvignon Blanc.

Americans ”new nothing about wine”, says Fourmeaux. The food culture and viticulture ”were not sophisticated in the 80s”, she says, but there was a reason for her to stay in California.

”I could have never became a winemaker in France. Here the oldest vineyards are run by maybe fifth generation of the same family. In France, it is the 15th generation. Foreigners are not accepted or taken seriously as winemakers in France.”

 

People doubted her in California too, but Fourmeaux says that the U.S. legislation made it easy to start a business and then proof that she can make good wine.

”Having a vineyard and winery in France means endless fighting with bureaucracy. Here I was able to concentrate immediately on developing the vineyard and the business.”

Fourmeaux wishes she could say that quality of wine means everything in sales but that is not true. The brand means nearly everything. Newcomer has to market aggressively.

”The most expensive wines of the world are not necessarily the best wines,” Formeaux says. The most wanted wines are the ones that have a name and fame.

Fourmeaux’s Mount Vedeer produced and sold around 300 000 bottles a year. It was a small, independent winery that had clients – restaurants, wine dealers and direct buyers – who had learnt to know the winemaker and appreciated her talent and brand. They were not looking for big volumes or a cheap price.

This kind of production is very vulnerable in economic turmoils.

The volume of the wine production of the U.S. has grown in past ten years from 35 million gallons to 117 million gallons. At the same time, the revenues to wineries grew from from $196 million to $1,494 million. There was a drop of one million dollars between the years 2009 and 2010, after the financial crisis of 2008.

”Premium wine is a luxury product. Many of my clients have big wine cellars. After the market crash they stopped buying new wines and started drinking the ones they already had in their cellars,” says Fourmeaux.

”I know many small winery owners who have been forced to quit because they haven’t had capital to overcome bad years.”

 

”I could have never became a winemaker in France. Here the oldest vineyards are run by maybe fifth generation of the same family. In France, it is the 15th generation. Foreigners are not accepted or taken seriously as winemakers in France.”

Fourmaux was forced to give up the Mount Vedeer estete and Château Potelle brand when she divorced. She now buys grapes from vineyards she has helped during her years in California and gets to choose the ones she wants. She gets a small amount from her own backyard plot of 100 acres. She matures and blends her current wine called Marketta in downtown Napa.

Marketta Winery produces only about 100 boxes of wine per year and sells them to two restaurants and loyal old customers. Earlier her wines were exported to Europe. Today Fourmeaux prefers to keep her business small although she knows that there are potential markets.

The European Union’s 28 member countries are the largest export market for California wine. Last year they accounted for $518 million and 35 percent of the exports. Canada is the second largest export market with value of $487 million. Following eight export areas are Japan ($88 million), China ($71 million), Hong Kong ($69 million), Mexico($24 million), South Korea  ($22.2 million), Nigeria ($21.9 million), Vietnam ($20 million) and Singapore ($16 million).

 

Näyttökuva 2015-10-08 kello 16.04.19

 

”Cheap dollar helped the exports for many years”, says Fourmeaux.

With weakening Euro, exports to Europe are down slightly. The Wine Institute of California is not expecting the situation to get any better in the near future.

The UK however, is seen as a more promising market. The sales of wines at low prices are decreasing in the UK but the sales of wines costing $15 or more increased last year by 30 percent.

In Japan, the situation is similar to the UK. The volume of the exports to Japan is decreasing because less and less bulk wine is shipped to Japan but at the same time Japanese show more interest in premium California wine.

Since 2011, the value of wine exports to Asia has doubled, and the future looks bright.

Even though the economy of China is currently slowing down and California wine exports to China and Hong Kong decreased last year. “Asia’s emerging wine markets remained buoyant in 2014 despite the negative impact of China’s ongoing austerity campaign”, reports The Wine Institute. ”However the long-term outlook for these key markets remains very promising.”

Wine industry lobbied strongly for the Trans-Pacific Trade Agreement and is pleased with the result so far. Wine trade will remain under special regulation but many trade barriers are to be eliminated.

 

If Marketta Fourmeaux was now to advice a young, enthusiastic winemaker on where to start her own winery, she would not recommend California.

”The land is so expensive. One acre of vine costs 250,000 dollars or even more.”

California attires affluent investors, and in Marketta Fourmeaux’s opinion some of them come here out of vanity. ”They want to make themselves nobles by buying a vineyard.”

California still has many advantages. The climate is ideal, and it is easy to get cheap work force from Mexico.

The country’s wine consumption is growing. The U.S. is now number two in wine consumption in the world and will likely bypass France soon. In per capita consumption, the U.S. is only the 23rd in the world when France holds the second place – after tiny Luxemburg. There should be plenty of room to sell more and more wine to the Americans.

However, Marketta Fourmeaux would advise a new winemaker to start in South America – or maybe in India which is an emerging wine area.

Chinese drink more and more Western style wine, and the climate is good for growing grapes in many parts of the huge country. China is already a huge producer of raisins. But China does not welcome foreign entrepreneurs in its’ agriculture.

France and Italy have long been the largest wine producers of the world. These old world countries are slowly losing their positions. The traditional, hierarchical, male-dominated wine industry is not appealing to young consumers nor innovative entrepreneurs.

Fourmeaux thinks this could actually open paths for new winemakers in lesser-known wine areas of France.

Marketta Fourmeaux is sure that one does not need to be an economist to become a successful wine producer. One needs to know wine and be ready to work hard.

Sharing is the New Buying

Why pay exuberant prices for goods and services when you can rent it more cheaply from a stranger online? That is the principle behind a range of online services that make it possible for people to share accommodation, household appliances, cars, bikes and other items, connecting owners of underused assets with others who are willing to pay for them. A growing number of businesses such as Uber, where people use their car to provide a taxi service to paying passengers, or Airbnb which lets people rent out their spare rooms, act as matchmakers, allocating resources to where they are needed and taking a small percentage in profits in return. 

Such peer-to-peer rental business is beneficial for several reasons. Owners make money from underused assets. Airbnb says hosts in San Francisco who rent out their homes average a profit of $440 (after rent) and some neighborhoods snagging upwards of $1900 a month. Car owners who rent their vehicles to others using RelayRides make an average of $250 a month; some make more than $1,000. Borrowers, meanwhile, benefit from the convenience and pay less than they would if they bought the item themselves, or turned to a traditional provider such as a hotel or car-hire firm. And there are environmental benefits, too: renting a car when you need it, rather than owning one, means fewer cars are required and fewer resources must be devoted to making them.

The internet plays a vital role in this business, it makes it cheaper and easier than ever to provide accurate supply and demand information. Smart phones with global tracking services can find a nearby room to rent or car to borrow. Online social networks and review systems help develop trust; internet payment systems can handle the billing. All this lets millions of total strangers rent things to each other. The result is known variously as “collaborative consumption”, the “collaborative economy”, “peer economy”, “access economy” or “sharing economy”.

The model of the sharing economy works for items that are expensive to buy and are widely owned by people who do not make full use of them. Bedrooms and cars are obvious examples but you can also rent fields in Australia, washing machines in France and camping spots in Sweden. As proponents of the sharing economy likes to put it, access trumps ownership.

How Did We Get Here and Why Now?

The world is at a turning point. Globally, economies are strained as companies and governments are seeking to “do more with less”. Natural resources are no longer cheap and plentiful and some are at the risk of exhaustion. The urbanization of populations continues to rise, and more old people are ageing while young people, such as the Millennials also known as generation Y, are booming. These changes are most prevalent in big cities and new business have already begun to adapt.

The consumer is changing, the Millennials generation, born 1980s to early 2000s, are 92 million strong and stand to inherit large amounts of wealth and decision making power in the U.S. for many years to come. Millennials have experience incredible uncertainty, having lived through the 2008 – 2009 financial crisis and struggles with increasing student debt. These financial pressures lead to demand for a more efficient allocation of resources – and that, by large means they want to own less, be more connected with others and be a part of something bigger than their individual selves.

While the classic American dream is to own everything, the Millennial’s version is to move to an “asset light” lifestyle. These trends have sparked massive innovation, created new marketplaces and potentially holding the keys to the future.

Premium on Ownership Disappears

About a decade ago, companies such as Zipcar started to capitalize on idling cars, which sit on idle for an average of 23 hours a day. Today there are hundreds of ways to share assets, the most popular ones include entertainment, transportation and hospitality and dining.

At 9% entertainment and media holds the highest percentage of users. The consumption of media has changed drastically since the rise of digital age and perhaps it is the best example of the millennial Screen Shot 2015-10-09 at 12.26.20 PMgeneration shift.

Let’s travel back to 1999, when the millennials were still children  exploring the internet. Many children took advantage of Napster, a website that enabled users to download songs for free. Illegal? Sure. But no one really cared. There are profound differences between the millennial’s peer-to-peer downloading than that of their parents or even people 5 years their senior. From the very beginning the experience of acquiring and consuming media content was based on the premise that access to content should be easy and free.

Now back to 2015, access to media content is essentially free. Want on-demand access to whatever music you want? Spotify has got you covered. On-demand access to movies and TV shows? Netflix. On-demand access to videos of anything you want to watch? Lose a few hours on Youtube. Of course some of these services require a subscription fee so they are not truly free. But when access to goods and services becomes cheap, satisfactory and reliable enough that the premium on physical ownership has disappeared, there is hardly any reason to purchase these goods and services aside from personal habits or peculiar requirements.

Ten years ago, to watch a movie released on DVD, there were 2 options: purchasing or renting. Of those options, renting was the inferior option as there was a greater premium on ownership. Today, that premium has disappeared, streaming a movie on Netflix isn’t inferior to owning a DVD the same way that renting was. And ever since then, the extensive access to cheap and easy media content, has lead to new kinds of behaviours have emerged like binge-watching. Similarly, the rise of music streaming services has enabled behaviours such as sharing playlist, a process that used to be time-consuming and effort-intensive. When nobody buys music but has access to it, social sharing of music emerges as a natural and human behaviour.

Obstacles on the road to Success

To truly grasp the scale and greatness of the sharing economy, consider the following data. Airbnb averages 425,000 guests per night, totalling to more than 155 million guest stays annually – nearly 22% more than Hilton Worldwide, which serves 127 million guests in 2014. Five-year old Uber operates in more than 250 cities worldwide and as of February 2015 was valued at $41 billion – a figure that exceeds the market capitalization of companies such as American Airlines and United Continental. According to PwC’s projections, the sharing economy (including travel, car sharing, finance, staffing and music streaming) has the ability to increase global revenues from $15 billion today to around $335 billion by 2025.

It is not hard to find evidence of successful sharing economy but not everyone is as delighted by the rise as its participants and investors. Taxi drivers in America and now Europe have complained loudly (and in the case of Paris, violently) about the intruders who, they say not only are unqualified but also under insured.

Uber has always been plagued with problems with regulation and taxi unions around the world. In 2014, a court in Brussels prohibited drivers from from accepting passengers through UberPOP or face a €10,000 fine. In July 2015, Uber took one of its biggest hits. The judge ruled that Uber has not complied with state laws designed to ensure that drivers are doling out rides fairly to all passengers, regardless of where they live or who they are. This lead to a $7.3 million fine or California Suspension.

It is not just car-sharing services that have run into legal problems. Apartment-sharing services have also fallen victims of regulations and other rules governing temporary rentals. Many American cities ban rentals of less than 30 days in properties that have not been licensed and inspected. Some Airbnb renters have been served with eviction notices by landlords for renting their apartments in violation of their leases. In Amsterdam, city officials point out that anyone letting a room or apartment is required to have a permit and to obey other rules. They have used Airbnb’s website to track down illegal rentals.

On top of legal regulations, issues with customers have also become obstacles for sharing businesses. In 2011, Airbnb suffered a rash of bad publicity when a host found her apartment trashed and her valuables stollen after a rental. After some public relations and Airbnb eventually covered her expenses and included a $50,000 guarantee for hosts against property and furniture damage.

Peering into the Future

The sharing economy can be compared to online shopping, which began in America 15 years ago. In the beginning, people were not too sure about the vendors and didn’t trust the services. However with time and perhaps a successful purchase on amazon or two, people felt safe buying from other vendors too. Now consider Ebay, a company started as a peer-to-peer platform, now is now dominated by professional “power sellers” (many of whom started as ordinary Ebay users).

Big corporate companies dominating the market are getting involved too. Avis, a car rental firm has shares in Zipcar, its car sharing rival. So do GM and Daimler, two car manufacturers. In the future, companies may follow a hybrid business model, listing excess capacity on peer to peer websites. In the past, new ways of doing things online have put the old ways out of business. But they have often changed them.

We will have to wait and see which on-demand services start to gain traction with mainstream markets and which wont’t. It is not likely that in thirty years time our whole lives will be on demand and we won’t hold ownership. But a major possibility is products and industries most likely to be disrupted by the sharing economy would be things that we possess but not necessarily. An example would be Airbnb, it has disrupted the demand for owning vacation homes (something you possess) and tourist hotels (something you don’t possess but is still “yours” in a way that an Airbnb isn’t).