Conventional economic wisdom suggests that during recessionary times, most industries will suffer. During recessions, the real estate, retail and other major markets tend to make less money than usual as people are hesitant to make unnecessary or major purchases when times are tough. However, historical patterns suggest that one nonessential commodity does surprisingly well during recessions: movies.

According to the National Association of Theater Owners, box office ticket sales increased in the five recession years before 2008 (Kiplinger). Despite being one of the worst years of the Great Recession, the number of movie tickets sold in the first quarter of 2009 increased more than 9 percent from 2008 (Washington Post). This phenomenon is not a new development. Movies have been performing well during economic turbulence since the Great Depression, when Gone With The Wind (the highest-grossing movie of all time when adjusted for inflation) and King Kong broke box office attendance records despite staggering unemployment rates. Meanwhile, 2005 was a rough year for Hollywood while the economy in general, powered by the housing bubble, performed very well.

At first glance, it is not logical for movies to perform well during recessions because they are not necessary for survival and are an easy expense to cut. The reason behind this cannot be explained by simple supply and demand graphs, but makes sense with a bit of behavioral economics. During tough times, people need to be entertained more than usual to distract themselves. The economic worry and unemployment caused by a recession creates more people needing distraction than usual. Movies are a great opportunity to escape from reality for a few hours at a relatively low cost.

The type of movies that perform well during difficult economic periods lend credence to the the idea that the box office is counter cyclical to the economy at large. According to the president of Box Office Mojo, Brandon Gray, “Comedies and epics tend to do really well at the box office during economic downturns.” (Fortune) This is because these genres fit into the escapism category that people seek out during economic difficulty. In the box office summer following the terrorist attacks of 9/11, Spider-Man brought in $403.7 domestically (Fortune). In the midst of the Great Recession, The Dark Knight broke the record for an opening weekend and ultimately made over $1 billion (Fortune). It is no coincidence that both of these movies feature likable heroes and themes of overcoming adversity. Additionally, the light-hearted comedies Step Brothers, Pineapple Express and Tropic Thunder were major hits during the summer of 2008. Despite ticket prices hitting an all-time high in 2015, the average ticket price of $8.61 still offers a relatively cheap entertainment alternative to dinners, bars or concerts (Slashfilm).

Unfortunately for economists, box office revenue is a trailing indicator. It does not help predict economic developments because increased ticket sales are people reacting to a recession when it has already taken effect. Still, the correlation between box office sales and the economy demonstrates that economic decisions are largely dependent on human psychology. It may not make sense for people to spend valuable income on something as superfluous as a movie during a recession, but the desire for entertainment can overcome logical decision making.

Sources:

http://archive.fortune.com/2008/08/21/news/companies/Movies.fortune/index.htm

http://www.kiplinger.com/article/business/T019-C000-S001-10-quirky-economic-indicators.html

http://www.washingtonpost.com/wp-dyn/content/article/2009/07/11/AR2009071100677.html

http://www.slashfilm.com/average-us-movie-ticket-price/

The “New Compton” is a phrase that has fallen out of the mouths of Compton politicians for decades now. It promises safety and economic revitalization, it whispers hope into an area marked by blight.

It’s easy to single out the crack epidemic of the ’80s and the gang violence of the ’90s as causes for Compton’s economic woes. But whatever the problems in the past were, the economic trials of Compton’s present are exacerbated by something as simple and mundane as a credit rating.

Or rather, the lack thereof.

Because just as a credit rating has a profound effect on where a person can live — and how well — a city’s credit rating can dictate how a city governs itself and how well it can take care of its citizens.

[Read more…]

A peek into the Eurozone does not bring a smile on an onlooker’s face. Despite its third bailout in five years, Greece’s economic problems remain largely prevalent. Within that period, its economy has shrunk by a quarter, and its unemployment rate currently sits above 25%. The problem, however, spans throughout the region. At present, 18 million people across the Eurozone are unemployed. This equates to 11.1% of the workforce. Additionally, government debt burdens are fairly high: 130% of GDP in Italy and Portugal, and above 100% in Belgium and Cyprus. To compound their misery, most of the European economies are predicted to grow by less than 2% for the coming year (IMF forecast). The Eurozone is in a crisis. The ongoing troubles in Europe point to the difficulty in creating and more importantly sustaining a common monetary union, and a common policy to adhere to the needs of individual countries (unless you are Germany). The failure of the Euro to live on its promise of a successful monetary union has threatened the implementation of monetary alignment in regions across the globe.

Despite the above warnings, South of Europe, the East African Community (EAC) is working towards a common monetary union with the notion of introducing a common currency for the entire region. While the challenges of macroeconomic convergence and loss of national sovereignty, not forgetting the failure of Euro, act as barriers, the EAC has taken positive steps towards this ambitious goal. While continuing to work towards fiscal convergence, the EAC has made progress through harmonization of financial, social and institutional laws and regulations. Although a monetary union is a work in process, the member states can definitely rejoice over the advantages that such a union will bring to the region in the future. With increased stability and investment being the primary positive outcomes. “Yes, the risks are evident, but the progress and benefits are even more apparent. The EAC’s decision to introduce the East African Monetary Union (EAMU) is certainly bound to be a successful endeavor,” Mr. Wayne Sandolhtz, Professor of International Relations, USC.

The Community’s Work

The EAC is a regional intergovernmental organization of five East African countries. Initiated in 1999 by Kenya, Tanzania and Uganda, the community welcomed two new members in 2007: Burundi and Rwanda. “The community was established with the intention of encouraging strong economic and political relationships within the economies in the region,” Mr. Sandolhtz. Since its induction, the EAC has worked towards this goal. Introduction of the Customs Union (2005) mitigated tariff and non-tariff barriers to trade, promoting intra-regional trade, and harmonizing standards for goods produced in East Africa. Moving a step further, the EAC initiated the Common Market (2010) to encourage free movement of capital and labor across the region. As a result, the region profited from economical development through increased investments, cross listing of stocks and joint infrastructure development projects, most notably the Arusha-Namanga-Athi River Road, which covers Tanzania, Kenya and Uganda. The countries have also joined hands to move towards social alignment. Standardization of university fees for citizens, implementation of cross-border disease control programs, and harmonization of procedures for granting work permits have encouraged movement of people to achieve labor efficiency in the region. Additionally, the countries share criminal intelligence and surveillance to combat cross-border crime.

The EAC functions as a community to work towards collective social and political progress. But more importantly, it is an economic union. In addition, the EAC hosts four of the emerging economies of Africa: Rwanda, Kenya, Uganda and Tanzania. Hence there is a collective need to work towards economic growth through regional integration and implementation of a common currency. Therefore, on November of 2013, the EAC announced its decision to introduce EAMU and the East African Shilling by the year 2024. “East African community is now fully embarked on enormous, ambitious and transformational initiatives for our people,” Uhuru Kenyatta, Kenya’s president.

Plausible Future Gains

Before delving into the feasibility of such an enterprising act, one must understand the reasoning behind the EAC’s decision to introduce a common currency. Surely, the future gains should be greater than the risks and costs associated with building a union.

For more than two decades, the currencies of the five individual economies have remained unstable. “Besides experiencing poor economic growth, the East African region remains a conflict zone; hence the exchange rate fluctuation,” Mr. Sandolhtz. “Introduction of a single currency will eliminate the volatility experienced by individual currencies, bringing in a more stable currency.” More importantly, for past 25 years the currencies have devalued against the dollar. Implementing a single stable currency will also mean a stronger currency. A single currency will serve to eliminate transaction cost and quicken cross-border payments. The reduced cost of operations will lead to a direct increase in businesses transacted in the region. Besides, a single currency will ensure that prices across the region are fairly represented.

Reduction in the cost of business supplants the Common Market incentive to increase flow of capital and people within the region. With movement across the region financially feasible and affordable, there will be increased mobility of people within the region. As a result people can move across the region in search for better job and educational opportunities. Consequently, people will have increased access to resources, and benefit from reduced costs of mobility. This will aid in the efficient allocation of labor throughout the region. Adding to the benefits from increased movement of capital in the region, the EAC will also attract foreign investors through reduced cost of business and currency stability. Besides representing the growing economies of Africa, the EAC boasts oil through Uganda and Kenya, with 250 trillion cubic feet of oil discovered in the Indian Ocean. Additionally, the realization of 30 trillion cubic feet of natural gas reserves in Tanzania will also guarantee influx of foreign capital.

Tourism is most likely going to experience a boom in the coming years. In addition to already initiated joint infrastructure projects, the EAC has introduced a single tourist visa for East Africa. This will supplant the policy to apply a common currency across the region to ease the movement and expenditure of tourists. Both, improved infrastructure through influx of capital and ease of operation will encourage greater international tourism for the region.

Towards Monetary And Fiscal Convergence

Understanding the advantages of a common currency does not make this a success story. It is just partial progress. The real challenge lies in implementing and maintaining policies that cater to the requirements for a establishing a successful monetary union.

A proposed move for the EAMU goes beyond a piece of paper. In theory, the idea seems to work. But executing the required policies to achieve fiscal and monetary alignments requires great commitment. That being said, the heads of state have already implemented a protocol towards attaining common policies, which is to be followed by 2021, three years before the introduction of the currency.

The heads of state have already begun introducing common laws and regulations to aid the implementation a common monetary policy. The EAC has achieved an integrated banking and financial system, and established an integrated payment system. This not only encourages business activities within the region, but also eases the introduction of a common currency. The protocol sets the target for fiscal deficit to be 3% of the GDP (including grant) in all the economies of the region. Although this target is set for 2021, all five economies, since 2004, have maintained the required criteria.

One barrier in the EAC’s progress towards monetary convergence is the required willingness of economies to loose unilateral control over instruments such as the exchange rate policy, which are crucial in dealing with specific macroeconomic shocks. Seceding this privilege to the EAMU will not only lead to loss of national sovereignty but will also mean that individual economies must surrender an important tool of economic adjustment. However, the perks of increased investment and job opportunities have garnered great public support and political will. Thus, it’s likely to eliminate the above-mentioned problems.

Achieving A Suitable Economic Structure

In addition to aligning their policies, members of the EAC must sustain an ideal economic structure, which is feasible for implementation for a common monetary union. The suitable structure entails macroeconomic convergence through common income and inflation targets, similarity in proportion of sectors as a percentage of GDP, and diversified products. These alignments are important, as a similar structure ensures that the countries have similar economic shocks, making a common policy an effective solution.

Real GDP growth averaged about 6 percent for the region during 2009–14, with individual country growth rates in the range of 4 % (Burundi) to 7 % (Rwanda and Tanzania). Currently, the economies inflation rates vary greatly, with the average price level ranging from 3.3% in Rwanda to 8.3% in Tanzania. Although there is a substantial gap, the protocol has set a common inflation rate of 5%, which must be achieved by 2021. Given that the economies are growing, it will be a difficult task to sustain an inflation rate as low as 5%. Hence, the protocol could renew its definition of inflation relative to the best performing member, which is Kenya. Although this may not be in the best interest of the other economies, it is a pill they musty swallow for a better health. Nevertheless, the countries’ alignment in terms with income and inflation remains a positive.

Each of the five economies has a similar sector allocation towards revenue. The agricultural sector accounts for 23 to 35 percent of the economy in all five countries. Coffee and tea are major exports for Burundi, Kenya, Rwanda, and Uganda. While Tanzania exports mostly gold, tobacco, and coffee, Kenya exports horticultural products as well. An almost similar revenue model points to the fact that these economies are most likely to be affected by similar economic shocks, be it internal or external. Hence a common monetary policy would serve as a universal solution.

Countries with a diverse set of products are more likely to survive economic shocks or hardships. Dependence on a range of products ensures that the country does not rely on a single product to generate its revenue, making it a stable economy. A similar ideology is followed in East Africa, where countries are working towards diversifying their revenue sources. The more stable the EAC is, the more likely it is to hold a monetary union. The implementation of the Common Market has gone a long way in encouraging this ideology. Free movement of goods, labor and capital, coupled with minimal barriers to trade has brought in variety of goods and labor in each region. This has spread each country’s horizon beyond agriculture, towards manufacturing, mining and construction. The discovery of oil in Uganda and Kenya, and natural reserves in Tanzania will further help the cause.

Progress So Far

 Potential Risk

Recent natural resource discoveries in Kenya, Tanzania, and Uganda will eventually lead to an increase in export of oil and natural gas from these regions, contributing to higher export values and lower external deficits in the future. Export concentration in these countries is also expected to rise, and the balance of trade dynamics would move in the opposite direction to their neighbours, Burundi and Rwanda, who are largely importers of oil. This may pose challenges on dealing with asymmetric shocks within the monetary union. For example, during periods of lower global oil and gas prices, Kenya, Tanzania, and Uganda would favour pushing for looser monetary policy and lower interest rates compared to Burundi and Rwanda.

 At Europe’s Expense

The EAC can certainly imbibe valuable knowledge from the EU, which is not to be like the EU. “The EU was considered as model for a monetary union, especially Africa, but the recent years have gone a long way in disproving that assumption,” Mr. Sandolhtz. Nevertheless, the EAC can implement the positives and discard the negatives at the EU’s expense.

The Werner Plan envisaged the creation of a European monetary union. This was to be achieved in stages, with each step encouraging member nations to establish patterns of coordination towards macroeconomic convergence in order to facilitate convergence of national currencies and reap other cooperative advantages (greater intra-regional trade). This plan served as a blueprint for the EAC in its establishment of the EAMU. “The ceiling conditions of 3% government budget deficit and public debt up to 60% of GDP mentioned in the EAMU protocol mimic those stated in the Werner Plan,” Mr. Sandolhtz.

Among the several problems responsible for the failure of the EU, the most significant one is that its economies are in different growth stages. This has been one of the problems

underlying the Euro from the beginning, with the core countries having quite different economic conditions and cycles to those peripheral countries such as Portugal, Ireland, Greece and Spain, which are now suffering the impact of a monetary policy, which was inappropriate for the prevailing conditions. The EAC, however, learning from the failure of the EU has decided to make the entire region function within a certain economic band. The protocols ensure that by 2021, the economies have achieved macroeconomic convergence, and are working in unison with one another. Besides all the economies are expected are in the development phase. Hence fast forward 10 years, the EAC will have been successful in achieving a similar growth cycle for all its members.

 Shilling’s Success Story

No doubt, the EAC has opted for a tough assignment. Currently, the entire region benefits from economic and social progress. The Customs Union and the Common Market continue to serve the goal of regional integration. With progress already taking place, the EAC’s decision to introduce a common currency comes as an added advantage, supplanting the existing growth potential within the region. Countries are likely to benefit from closer integration, increase in intra-regional trade, price harmonization, reduced cost of business, increase in foreign investment, and increased efficiency through improved allocation of labor and capital. The EAC, following the Werner Plan, has set an agenda to introduce the East African Shilling by 2024, but first it must bring the five economies at level with regards to fiscal and structural alignment. The signs of progress are already visible. Given its advantages and feasibility, the Shilling could turn out to be a success story replacing its predecessor, the Euro, as a successful model for a monetary union. Perhaps, the potential success can draw the economies of South Sudan and Somalia towards the EAC, resulting in increased benefits through further integration. Perhaps, this success can ignite Africa’s ultimate goal of a common currency for the entire continent.

By Alexa Ritacco

“Travel Agent? What’s the point?” said the 18 year old, as he finalized his booking for his senior spring break trip to Cancun on Expedia. With a click of a button he books his flights, all-inclusive hotel, airport transfer and adventure trips for a 5-day vacation for him and 3 of his friends.

Yes, nowadays it is extremely easy to book a trip to literally anywhere. You want to go to Bali? Go right ahead. Paris? Just go! All you have to do is visit some sort of travel site, whether it be Expedia, Orbitz or Priceline, and you’re halfway there. There is nothing complicated about booking travel these days. But obviously it wasn’t always this way.

Fifteen plus years ago was the age of the travel agent. These people had all of the power when it came to getting you from point A to point B, and dealing with your travel needs. It seemed as though they were the only way one could easily book and handle their travel plans. There was a point in time where one could not simply go to American Airlines’ website and view all of the possible flight times. Schedules were displayed in complicated codes, often through the popular travel system of Sabre, that generally only a travel agent could access and work properly. The same went for hotel bookings.

Consumers were able to call and book their own travel through airline telephone lines as well as hotel telephone lines, but comparing prices, times and schedules could get extremely time consuming and frustrating for both parties involved. Enter the Travel Agent. A magical person who could do all of the dirty work, and leave the customer with the easy part, which was picking and choosing what best suited their budgets and schedules.

With the Internet boom of the late 90’s that led into the early 2000’s, like many business models of the 1990’s, the travel industry saw a major change. Their entire business model was suddenly disrupted. All of the services a travel agent had to offer began to be readily available online. Flights could be easily booked on their own. Schedules, times and prices could be easily displayed and collected with a single click. Same with hotel rates. As more and more hotels began building websites, reservations could easily be made online.

But what really killed the true art of the travel agent were the bundle websites, sites like Orbitz, Expedia, Priceline, and Travelocity. These sites can book your flights, hotels, cars, excursions, airport transfers, you name it. The rise of these sites seemingly erased the need for this particular job.

So you’d think by 2015 the profession would be dead, if not close to dying, right? Well actually, wrong. The popularity, or rather mainstream-ness of travel agencies has most certainly decreased. But the need is most definitely still there. Believe it or not, members American Society of Travel Agents report the booking of over 144 million vacations each year. And in 2012, ASTA reported $17 billion dollars in revenue. As the industry witnessed extreme changes in the flow of their business model, travel agents adapted and found new holes to fill.

In an effort to alter consumers’ views of the profession, John Pittman, a vice president at ASTA, said the society prefers to use the term “travel professional.” This title illustrates the profession more broadly as most current travel agents do much more than simply act as the go-between for travelers, airlines and hotels.

In what used to be a business that targeted everyone, travel agencies have begun focuses largely on targeted markets. These markets include luxury, business and nice travelers, as well as large groups and corporate travel, and the often not as tech savvy elderly. Many boutique travel agencies exist for the sole purpose of catering to some of the nation’s most wealthy travelers. Or others cater for many Fortune 500 companies, booking corporate travel, retreats and company outings.

Valerie Ferrara began her career as a travel agent at Liberty Travel, one of the very few chain travel agencies that is currently left standing. What she witnessed there was a turn from serving the travel needs of her surrounding community, to the travel needs of anyone in the nation. Liberty Travel, which operates in free standing stores and shopping centers around America, developed an online matching system that connected consumers with an agent either via email or phone, depending on preference. Their agents began taking on the role of virtual agent. Customers still have the freedom to browse their options, but have the support and consulting perks of a personal agent. This is one example of how agencies have adjusted. But what about the smaller ones?

Currently Ms. Ferrara works at a much smaller, boutique travel agency as a travel consultant. Here, they specialize in luxury and group travel. She had this to say about the majority of their clientele, and how the money keeps coming in:

“I’m sure the average person would be surprised to learn that all of the agents in my office make a more than decent living off of being a travel agent. Our clients are booking regular vacations that can sometimes total up to $200,000. Just a few days ago I booked and planned a trip for $50,000 for a family of four going to New Zealand for 13 days. We plan the little details that the online sites just can’t, and probably won’t ever be able to handle. We also have incredible connections and great relationships with hundred of hotels and service providers around the world. It’s unbeatable in many, many ways. Our clients are extremely needy, and the services provided online will probably never be up to par for them. I can’t tell you how many times we have had clients come crying back to us after booking disastrous vacations online. To most, their situations would probably not be considered ‘disastrous’ but with this particular clientele, they have very specific travel needs and only the services of an agency can provide.”

So clearly, public perception of travel agencies does not tell the whole truth when it comes to the actuality of the business. But of course that side of the business has suffered, taken a hit, and has had to adjust as a result. And what’s been taken from that side has been crazily multiplied and expanded into what is now a huge business of online travel booking.

Expedia, one of the largest online travel booking empires, was founded in 1996 and is now worth $16 billion. In just under 20 years it has almost taken over the online travel booking market, having acquired other travel giants like Orbitz, Trivago, Travelocity, and most recently, online rental service HomeAway. In fact, much of the travel industry has seen a large consolidation over the past few years. Whether someone is booking on Orbitz, Expedia or Travelocity, their money is going to the same place. Think you have a lot to choose from when it comes to car rentals? Sure, you’ve got Alamo, Avis, Budget, Dollar, Enterprise, Hertz, National, Payless and Thrifty. Except not. Those 9 are collectively a part of 3 corporations, those being Avis, Enterprise and Hertz. Same goes for airlines, cruise lines and hotel giants.

What do these mergers mean for the consumer? Well typically giant company mergers, in general, have not often benefitted consumers. In most industries, the consumer’s benefit most from fiery competition in an effort to please them the most. Yet executives at Expedia and Priceline have remained positive that this will not be the case with the online travel industry. Expedia CFO explained how the online travel industry is a $1.3 trillion dollar industry, yet what Expedia owns is likely in the single digits.

But one issue that mergers do help to remedy is the idea of an approaching perfect market that the online travel industry could potentially set up. A perfect market can happen under such conditions when all parties are selling identical products or good, when parties can no longer control the market price of what they’re selling, when all parties have a relatively small market share, and when buyers have complete information of what’s being sold and what the price should be. Having giants like Expedia own large portions of the market has helped prevent this from occurring.

Since the 1990’s the travel industry has undergone some incredibly major changes. It shifted from being an agent dominated field, to a self-booking online industry giant. Yet, somehow agents have managed to survive and evolve and continue creating a place in the market for themselves. While the agent does not dominate the travel market by any means, it is naïve to say that the profession of a travel agent is dead. The industry has grown so rapidly, and there is more than enough room for everyone, even as more and more keep hopping on the travel train.

It is important to note that the changes seen and experienced in the travel industry are not unique to just this industry. Similar growth and change has occurred in the music and transportation markets, and it is an interesting comparison to be made for such varying industries.

 

http://www.usatoday.com/story/travel/columnist/mcgee/2015/03/04/airline-mergers-expedia-orbitz/24319965/

http://www.cnbc.com/2015/07/01/online-travel-industry-is-booming-report.html

http://www.huffingtonpost.com/us-news-travel/when-to-use-a-travel-agen_b_4611806.html

http://www.cnn.com/2013/10/03/travel/travel-agent-survival/

http://www.businessinsider.com/why-you-should-use-a-travel-agent-2015-7

http://www.ajhtl.com/uploads/7/1/6/3/7163688/article_37_vol_3_1.pdf

The Undercover Economist by Greg Ip

 

 

 

How does a company like Tesla Motors, which sells only 50,000 vehicles a year, a number which is deemed as microscopic when compared to much larger companies such as BMW, which sells over a million number of cars in a single year, be a multi billion dollar company?

With the increasing number of Tesla products out in the public right now, it will come as no surprise that the company is doing very well financially in the past few years. There was a significant increase in revenue between 2012 and 2013, increasing by 487% and then again from 2013 to 2014, increasing by 59.9%. Out of the $3,198,356,000 of revenue collected in 2014, $3,192,723,000 was gained from automotive sale alone.

The sudden increase in revenue in 2013 caused the stock price for Tesla to skyrocket and almost reach its peak in the mid of 2014. Although the stock market price decreased in 2015, the stock market price for the company is predicted to increase when the new Model X and Model 3 are released in the next 2 years.

Although Tesla Motors has shown a promising number of revenue for a company that was founded a little over 10 years ago, its numbers are like a drop in the ocean as compared to the numbers produced by its competitors across the board. Take BMW, for example, which is like Tesla Motors, is a company that manufactures luxury vehicles. BMW made a total of US $87,363,726,600 in revenue in 2014, that’s 27 times more than what Tesla made in the same year. The main reason for this is because of the far more diverse vehicle models that BMW has available for purchase as compared to Tesla, which currently only has 1 model, the Model S, available for purchase.

Thus, as compared to BMW, Tesla will need to grow exponentially. It’s hard to imagine this sort of growth happening any time soon, regardless of Tesla’s product offerings as BMW has a total of 25 different models versus Tesla, which currently offers 1 model of vehicle available for consumers. Even when both the Model X and Model 3 are released for the public eventually, that would round up Tesla’s model line-up to a grand total of 3, which is not at all a number sufficient enough for the company to beat out its competitors.

With such a significant difference in the amount of revenue that the two companies are making, one might think that the market capital of BMW would be much greater than that of Tesla. However, that is not the case at all. Tesla has a market capital that is only half the amount of the market capital of BMW. That is pretty impressive for a company that is making 27 times less in revenue than its competitor. In fact, it is even much more impressive that a considerably small company like Tesla is able to reach a billion dollars in market capital, considering the fact that the company only produces about 30,000 vehicles a year.

    

Tesla Motors Inc., founded in 2003 by Martin Eberhard and Marc Tarpenning, is an American company that focuses on designing and manufacturing electric cars. Tesla Motors is the first public American Car Company since Ford Motors became public in 1956. The company has led the revolution by mass-producing the first line of all-electric vehicles in the world. Elon Musk joined Eberhard and Tarpenning in 2004, where he contributed $ 7.5 million to help fund the company.

Musk went on to become the Chairman of Tesla’s Board of Directors. Tesla was founded, in Musk’s own words, “to accelerate the advent of electric cars”. Every model designed, every vehicle manufactured had to be more than competitive; it had to be flawless. A single defect could set the electric movement back decades, as it had been in the past. Musk played a very active role within the company and oversaw the design and manufacture of Tesla’s first production vehicle, the Tesla Roadster.

The Tesla Roadster is an all-electric sports car that was the first highway-capable all-electric vehicle for sale in the United States. General production of the car began on March 2008. On June 29, 2010, Tesla launched its initial public offering on the NASDAQ, which raised $226 million for the company, selling 13.3 million shares of stock. By the end of 2011, Tesla stopped selling Roadster models in the United States, to focus on the launch of its newer, more defined Model S electric sedan. While not necessarily revolutionary, the Roadster was instrumental in establishing the Tesla brand.

The past few years have been looking pretty good for the company. The highly anticipated Model S, an all-electric, 4 door luxury lift-back sedan was released in 2012, saw global sales that totaled to 22,500 vehicles in the year 2013, selling a whooping 6.900 vehicles in the fourth quarter of that year, pushing the year-sale beyond the company’s target.

Most recently, Tesla Motors just announced new additions to the Tesla Family by introducing the Model X, a four door, seven-seater car that will be out for release in 2016 and the Model 3, the first affordable electric car that Tesla will produce will be released in 2017. Due to the different features and capabilities that all 3 cars have individually, the 3 vehicles have enough differentiating features from each other to prevent intercompany sales cannibalization despite all 3 of them being a high performance electric luxury vehicle.

In addition, Tesla Motors broke ground on the Gigafactory in 2014 in Nevada, which is expected to begin cell production in 2017. The Gigafactory, which would greatly increase battery production and reduce its manufacturing cost is expected to reach full capacity by 2020, and produce more lithium ion batteries annually than were produced worldwide in 2013.

There is also an increasing number of Superchargers that are available in the United States right now. The Supercharger, which is a high-powered facility where Tesla drivers can get free electricity to extend their range while traveling much like gas stations for electric vehicles, grew over 200% in the United States between the year 2014 and 2015. The company added 958 Supercharger and destination charger locations throughout the country, which bring the total to 1,346. 90% of the US population is within 175 miles of a Supercharging location, close enough to get access to the countrywide charging network.

In the contrary, much like any other successful company in the business, there have been setbacks that Tesla Motors has faced as a company. For instance, a month ago on November 2015, Tesla Motors announced that they were conducting a voluntary recall of all the 90,000 Model S cars due to a single report in Europe of a front seat belt not being properly connected. The shares for Tesla Motors fell immediately after the issue was reported, it slid 1.9% to $217.49 on the same day, a 3-year low for the company.

Another major issue that Tesla faces is probably the fact that, as mentioned before, the company is not able to sell as much cars as its competitors. In an interview with Automotive News, Musk revealed that he “wants the company’s estimated 2013 U.S. volume of 20,000 units to soar to 250,000 and to 500,000 globally by the end of the decade.” However, it is easier being said than done as Tesla’s established rivals, companies such as Audi and BMW have begun offering capable electric vehicles of their own, hence Tesla will not be the only choice for long-range zero-emission transportation in the future. With the introduction of the all-electric luxury vehicles such as the i8 and the E-Tron models released by BMW and Audi respectively, Tesla will no longer have the electric vehicle market to themselves in the near future. Therefore, with a new range of selections for the consumers to choose from, it is very unlikely that Tesla is able to sell 500,000 vehicles globally by 2020 despite Musk’s vision.

So back to the original question: how did Tesla become a multi billionaire company as compared to other companies that produce cars in much greater volume?

To start, we have to take into account that the valuation of an automotive company is based on scale. This means that the company has to operate the business by allocating and optimizing resources to drive the greatest results and volume across market segments. Companies that scale have operating leverage, which means they can grow revenue with minimal or no increase in operating costs.

To add on, the automotive industry is also a capital-intensive business. These automotive companies require substantial amount of capital for the production of their vehicles. This is because the automotive companies require high value investments in capital assets, such as the materials needed to manufacture a car.

With big automotive companies such as BMW, which produces an average of 2 million cars over the past few years, the marginal cost to make a few extra vehicles will not be as high as the marginal cost it would take for Tesla Motors to do the same thing.

Hence, with the minimal marginal and operating cost despite the increase in the number of cars available for purchase, it is no wonder that a company like BMW is as successful as it is. Moreover, considering the fact that the price for a BMW vehicle ranges from $30,000 to $80,000, and the gross profit for the company in the year 2014 was $17 billion, it is no surprise that BMW, a company that was found almost a hundred years ago has a market cap of over $60 billion.

In contrast to BMW, Tesla produces only 30,000 vehicles on average for the past few years. Therefore, based on the difference in the number of quantity of cars produced by both companies alone, it is fair to conclude that the marginal cost to make extra vehicles for Tesla is larger than that of BMW. However, despite the statistics showing net loss for the company, the unprofitable company has a market capitalization of $31 billion, as mentioned previously.

Well this is because Tesla Motors is unlike any other automotive company out there in the market right now. There are a few factors that Tesla Motors possesses that make it stand out from its competitors, and hence leading investors to assign so much value to the company.

Tesla has a larger gross profit margin as compared to its competitors in the present, and it is very likely to continue to increase in the future with the completion of the Gigafactory.

When Tesla’s gross profit and revenues are compared to 4 other traditional automakers, Tesla’s gross profit percentage exceeded that for the other car manufacturers with 22.7%. Moreover, since the cost of goods sold per vehicle will most likely drop as production volume increases, Tesla’ gross profit will continue to increase and extend its gain over the likes of BMW.

In addition to that, when the new Tesla Gigafactory is completed in 2017, the cost of the battery pack will be reduced by 30%, which will further increase the profitability of Tesla Motors in the near future. Tesla’s battery packs are routinely estimated to be a good tier cheaper than other EV batteries, all thanks to Tesla’s continual improvement of the battery packs. Tesla’s constant work to improve its batteries is one side of the cost-cutting calculus, but another important side is simply scale. Scaling up production results in greater manufacturing efficiencies, manufacturing improvements, and cost reductions. Tesla is scaling up its production big-time via the Gigafactory, and no competitor is showing that anything similar is in the works.

Apart from the Gigafactory, Superchargers and high profit margin, the main difference Tesla Motors has that gives it a competitive edge from other companies is probably the unique way the company operates. Tesla has shown repeatedly that it cares more about providing the customer with good service, a good product, and honesty than making a little more money off of them. For example, Tesla sells vehicles directly to the public through its own stores and the Internet, rather than relying on dealerships like traditional automakers. This makes the experience of purchasing Tesla’s products more intimate and personal as compared to buying your vehicle through a dealership. That kind of reputation for integrity and morality is something long lacking in the automobile industry, and there’s no doubt that customers have found it to be very refreshing and desirable. If Tesla keeps it up, it’s going to gain more and more brand loyalists and hence increasing the company’s number of investors.

In conclusion, Tesla is only just beginning its outstanding journey as the revolutionary multi-billion dollar company that will change the way people look at Electrical Vehicles. Its innovative vehicles and operations will continue to redefine standards across the automotive industry and Tesla will probably be a name that one will hear a lot more of in the near future.

Sources:

http://www.fool.com/investing/general/2014/01/14/tesla-motors-inc-stock-jumps-on-big-numbers-at-det.aspx

http://cleantechnica.com/2015/11/25/tesla-superchargers-grow-200-in-usa-in-1-year/

http://www.bloomberg.com/news/articles/2015-11-20/tesla-to-recall-90-000-model-s-cars-to-check-front-seat-belts

http://www.economywatch.com/world-industries/capital-intensive.html

http://www.encyclopedia.com/topic/automobile_industry.aspx

http://evobsession.com/tesla-competitive-advantage-5-big-ones/

http://www.latimes.com/business/la-fi-hy-musk-subsidies-20150531-story.html

http://www.reuters.com/article/us-teslamotors-cash-insight-idUSKCN0QE0DC20150810#D938UoHbViWob8l8.97

https://www.quora.com/How-can-Tesla-survive-when-it-competes-with-companies-that-produce-cars-in-much-greater-volumes

http://www.fool.com/investing/general/2014/02/05/7-reasons-i-invested-in-tesla-motors-inc.aspx

http://www.autonews.com/article/20140113/OEM/301139981/audacious-growth-plans-will-stretch-tesla-beyond-its-comfort-zone

http://www.investopedia.com/articles/active-trading/072115/what-makes-teslas-business-model-different.asp

http://www.elonmusk.com

http://www.youtu.be/L-s_3b5fRd8

In China, the bourgeoning market of liquid milk and dairy products has transformed into a fierce battlefield packed with domestic and international milk producers fighting aggressively for the market share. This situation seriously challenges the status quo of a long-standing milk duopoly in China, and more importantly, unveils great market potential of the under-saturated and under-estimated liquid milk demand for foreign brands.

 

Money, Milk, and Media

It was not a long time before Chinese consumers were bombarded with flooding milk commercials and dazzling dairy product placement in variety shows and movies. In November, Yili, the largest dairy firm in China, pledged $470 million U.S. dollars in its TV advertising campaign for the year of 2016. With $171 million dollars on exclusive naming rights for two of the most-watched Chinese reality shows, Yili also bought exclusive primetime advertising slots for CCTV’s 2016 Rio Summer Olympics Scoreboard and other leading entertainment shows.

Not to be eclipsed its most ambitious competitor Yili, Mengniu also marched on with its advertising campaign. The firm generously invested hundreds of millions of dollars in naming TV programs that are major rivalry with those sponsored by Yili. During the media sponsorship auction season this year in China, in TV advertising alone, Mengniu sponsored $120 million dollars with competition show Run for Time and Summertime Sweetheart Season 1, a reality show that is even still in its brainstorming stage.

There has been a long history of Yili and Mengniu’s competition in the Chinese milk industry. Unlike baby formula market where foreign brands completely outplay Chinese domestic sellers and claim 54% of the market, liquid milk consumption is a different story.

Yili and Mengniu, counterparts of Apple and Android in the cell phone industry, dominate significant market shares of liquid milk in China. Both milk giants account for 21.7% and 18.8% of Chinese liquid milk sales respectively, followed by WaHaHa of 9.6% and Bright Dairy of 6.9% in 2013. Yili earned a profit of $652 million dollars in 2014 while Mengniu claimed its profit at $360 million dollars.

The overwhelming advertising strategy employed by dairy companies guarantees that if a television show consumer turns on his TV during prime time, this target consumer would be very likely exposed to milk advertisements, either kids drinking milk with smiling faces or young professionals trying a solve her digestion problem with premium-priced yogurt.

The aggressive marketing approach, along with the considerable amount of advertising money that is more than 80 percent of the annual profit, exactly reflects how desperate Chinese milk companies are in order to capture the ever growing market of liquid milk. But the duopolistic situation is about to change, when foreign competitors come into play and try to get a share of the huge cake.

 

(Yili and Mengniu’s TV ad campaigns with reality shows Where Are We Going Dad? Season 3 and Run For Time Season 1.)

The Next Growth Point

If there is anything that deserves attention in the Chinese milk industry, it’s the exuberant and growing demand that dictate the liquid milk market. As the Chinese government abandoned its controversial one-child policy, China will implement its two-child policy starting from next year. For dairy firms around the globe, the good news is that in the next decade, millions more children will be accompanied with cow milk during their childhood and adolescence. In the future, those who grow up with milk consumption behavior can be core customers that help support sustainable growth of dairy companies in the long run.

Even if the new two-child policy may bring more babies, the sales increase in the baby formula market has remained comparatively weak. A Nielsen report shows that in the first half of 2014, dollar sales of baby milk powder in China jumped by 7 percent, however unit sales slumped by 4 percent. As the competition in milk powder market intensifies and the market gets saturated, price wars can become a normal state in the industry, making it harder for firms to grasp the market share. While the sales of baby milk are likely to face its bottleneck in the near future, liquid milk, in contrast, has a brighter prospect.

Thanks to the continuing urbanization and shifting consumer behavior in the Chinese rural area and third- and fourth-tier cities, more people are switching from drinking soy milk to cow milk for their breakfast. In 2012, a Chinese consumes only 32 pounds of milk a year on average, whereas an American drinks 168 pounds per year and the figures for neighboring Japan and South Korea are 75 pounds. A ten percent annual increase of discretionary income over the past decade enables Chinese consumers to spare more money on their groceries, thus creating huge potential for liquid milk consumption.

However, the 2008 melamine scandal left long-lasting aftershock on Chinese domestic milk brands. Eighteen local dairies were found adding melamine into raw milk in order to fake high quality cow milk. Consumer confidence has never recovered from deep suspicion against local milk companies since then. In an effort to appeal to those who have lost their faith in domestic milk, foreign companies seized the chance and launched its marketing campaign. The result proved to be a huge success.

In the past decade, the amount of imported liquid milk in China have grown exponentially, from less than 4,000 tons in 2005 to 200,000 tons in 2014, according to the U.S. Department of Agriculture. As of 2015, firms from 27 countries, including the U.S., Germany, and Australia, have been exporting liquid milk to Chinese market with more than 100 brands. The confidence in safety and quality is the major driver behind the growth.

Since the baby formula market has already been dominated by international brands, Chinese firms are now fighting hard to prevent its liquid milk business from being taken away by foreign competitors. Unfortunately, it seems that both Chinese and international companies are primarily targeting the same group of consumers.

 

Target the High-End Market

Milk has always been a luxury in China for thousands of years until 1980s, when the economy went back on track after the end of the disastrous Cultural Revolution. A large part of Chinese population is intolerant to lactose, making it hard for them to digest milk, cheese, or other dairy products. Chinese never in their history used milk, so when milk companies attempted to create demand in the 80s and 90s, they marketed milk as a necessary source for strength, nutrition, and energy, as well as a symbol for better living standard. “A pound of milk a day, keeps Chinese strong,” slogans similar to “an apple a day keeps the doctor away” could be heard on TV and radio on a daily basis.

As milk consumption steadily rose since 2000, Chinese firms shrewdly sensed the huge potential purchasing power of Chinese middle class families. That’s why Yili spent hundreds of millions of adverting budget on reality TV shows like Where Are We Going Dad? to broadcast visuals of celebrities’ children drinking its QQStar, a flavored milk product that is designed for kids under 12 and priced at a premium. QQStar comes with a small 4-ounce carton, meaning lower packaging costs compared to regular milk packaging. By targeting millions of middle- and upper-class parents of spoiled only-child, Yili managed to generate more profit margin from selling milk in smaller size.

In the liquid milk market, international firms price their products at even higher premium to attract high-end customers in Chinese market. Australian milk firms like Pauls, Harvey Fresh, and Lemnos mostly sell their merchandise through online stores. By branding themselves as the gateway to high-quality lifestyle, they successfully drew attention from urban wealthy families that don’t care much about money but instead put more weight on the product quality they receive. German brand Oldenburger, for instance, even put German flags and huge “product of Germany” banners on goods shelves in some stores to signal its German origin.

(Imported milk products in Chinese stores.)

Historically, because of the perception that imported goods are usually superior in quality, Chinese consumers are willing to pay more than do global customers. Merchandise that is not native to the Chinese market – coffee, cherries, pistachios – are generally well accepted at higher prices in anticipation of higher value. Imported milk is no exception. An imported product typically doesn’t require massive advertising campaign to push sales, because its country of origin is a good selling point in itself.

It’s difficult to predict whether international companies will occupy larger shares than do Chinese brands in liquid milk market. However, it can be foreseen that in the near future, Chinese firms are likely to undergo more intense competition from each other, because international companies have overall greater and more trustworthy brand images. For Chinese milk giants Yili and Mengniu, they might lose their leader status if they failed to grapple opportunities to cater to customer needs and to rebuild their brand images.

They are working hard on it. Perhaps it may seem awkward sometimes, especially when you see a 15-second close-up shot of Yili milk carton held in American actor Stanley Tucci’s hand, in the 2014 Transformers: Age of Extinction movie.

 

https://youtu.be/tmyBOyChsoI

Sources:

China Milk and Dairy Market Report 2015, KPMG China, May 2015

There was a lot that was confusing about the November Republican debate, when the economy took center stage as a topic.

Senator Rand Paul said he would like for the U.S. to get ride of the Federal Reserve. A couple candidates trotted out the idea of returning to the gold standard. But equally as puzzling was the consensus among the candidates that what America really needed to spur job growth was deregulation.

The candidates’ parroting the virtues of deregulation was puzzling for at least one major reason: a lack of federal oversight, according to many financial and policy experts, was one of the major causes of The Great Recession.

The deregulation that set up the financial crisis of the late aughts didn’t fall under the purview of any one administration. Under President Bill Clinton’s administration, for instance,  the Glass-Steagall act was repealed — regulations that served to keep the business of main street (that is, things like mortgages) from the business of Wall Street (investment).

But Gramm-Leach-Bliley toppled those walls, allowing companies like JP Morgan and Goldman Sachs to use mortgages as a financial product, able to be packaged into CDO’s, bought, sold and bet against. And as those mortgages got riskier and riskier, because there was no federal regulation, there was no oversight, and thus, no one to pump the brakes.

All of this was pretty clear when the collapse happened. Main Street, right or wrong, pointed its fingers at Wall Street, as did the government. Round after round of congressional testimony berated Wall Street executives. In the wake of the public outcry, Dodd-Frank and the Volcker Rule were passed, which — at least in theory — put an end to investment banks having CDOs, restricted them from making certain kinds of speculative investments and limited the kinds of hedge funds banks are allowed to own.

But that was yesterday.

In today’s presidential race, many prominent candidates, particularly within the GOP, are once again touting the virtues of financial deregulation.

Which raises the question: are you freakin’ serious?

These are the candidates who are quick to say that we are still in financial recovery — a recovery that came about in large part by deregulation. So what gives? How can these candidates tout lack of oversight and call it “job creation” and “economic opportunity” with straight faces?

The answer is frustratingly simple: because there’s a lot of money involved.

The New York Times recently completed an investigation into campaign donation thus far in the presidential race. They found that, so far, 158 families have provided almost half of all the early money to presidential candidates. These families tended to be rich, white, older, and headed by men. They leaned conservative. And of the industries they represented, the largest was finance.

As it turns out, they’re a very specific group of financiers that are backing GOP candidates: hedge fund owners, venture capitalists, and partners in private equity firms.

Of those 158 families, 138 are supporting GOP candidates. And of those 138, nearly half (64) are involved in finance.

The potential payoff is clear. Democrats have pledged to uphold Dodd-Frank, and have argued for changes that would introduce higher levels of corporate and investment taxation. The GOP, meanwhile, in the name of promoting economic growth and opportunities, has fought these policies, urging instead for broader tax cuts and deregulation of the finance and energy industries.

Adopting those policies makes smart business sense if you’re a Republican presidential candidate: the total amount those 158 families have donated thus far to presidential campaigns is about $176 million dollars.

 

 

 

Earlier this week Britain agreed to participate in bombing ISIS bases in Syria. This should come as good news to a majority of people around the world, especially after the terrorist attacks in Paris, but a significant number of people cannot look beyond the comforts of their home and think of the innocent Syrian lives affected; economically, socially and emotionally. As the world unites against terrorism, it is unknowingly playing the role of a terrorist. Sure, carrying out air strikes over ISIS bases will curb the expansion of the organisation, but at what cost? Since 2010, Syria has lost 230,000 of her own, witness 11 million displaced from their homes, and experienced a fall in GDP by 60%. This is no mere coincidence.

 

Damaged Economy

 

 

 

 

The cumulative economic loss since war broke out is equivalent to 229 percent of the country’s 2010 gross domestic product, according to research by the Syrian Center for Policy Research. Energy. Manufacturing and agriculture have suffered the most. Syria’s mining and construction workers have also been dealt a blow, with exports dropping from $12 billion to $2 billion.

 

Refugees On The Run

Four years of conflict has left about 11 million people as refugees or internally displaced. The impact has been particularly acute on Syria’s youngest generation. In a country where the pre-war literacy rate was about 90 percent, many children are now deprived of an education. Consequently a sizeable portion of the population, mainly the youth has left for a better life and opportunity. Syrian refugees expected to arrive in B.C. between now and the end of February are expected to generate $563 million in local economic activity over the next 20 years.

 

Crude Reduced

Before the European Union suspended crude imports in September 2011, Syria produced about 380,000 barrels a day, according to then Oil Minister Sufian Alao. Production has since collapsed, with Islamic State using the limited supplies for their own operations. A report by Syria’s General Establishment for Petroleum stated that first quarter oil production averaged 9,486 barrels a day.

 

Syria’s Growing Count

The war has left 230,000 Syrians dead. In the region’s modern history, it is only second to the Iran – Iraq war which left a million people dead on either side. As the ISIS continues to strengthen its hold the rest of the world will continue to spoil their expansion through air strikes. In the middle are the helpless Syrians whose numbers will keep rising.

 

I do not blame the US and its disciples for this. Although Syria’s fall is attributed to the presence of ISIS and the resulting war, the rest of the world cannot walk out without feeling guilty. They have worsened Syria in their attempt to save her. Do not get me wrong. I am not discouraging the air strikes on ISIS base, but I am pointing out the tragedy facing Syria, hoping that more people understand what the Syrians are suffering through.

 

Sources:

http://globalnews.ca/news/2374843/syrian-refugees-to-boost-b-c-economy-by-half-a-billion-dollars-report/

http://www.bbc.com/news/business-33244164

https://www.chathamhouse.org/sites/files/chathamhouse/field/field_document/20150623SyriaEconomyButter.pdf

Many people in the U.S. can say one word of Finnish without knowing it. They can say sauna. Some of them – I believe – even have some kind of an image what sauna is.

Some few have experienced it.
Sauna is an old Finnish word, and it is ancient old tradition in Finland. The word refers to the old way of bathing in this cold country, and it refers to the bathing house – a steam room that is heated up of with a special kind of stove, kiuas.
Ages ago saunas were considered sacred places in Finland. Women gave birth to their children in saunas – as they were not only sacred but also clean and warm places even in the midst of cold winter. There are many superstitions and old rituals related to bathing in sauna.
Still today, saunas are so important to Finns that nearly every apartment building in the country includes a common sauna for its habitants. In addition to that, quite many people have a tiny sauna in their apartment.
Houses are sure to have a sauna room – it would be considered odd if a new house built in Finland did not include a sauna.
In the cities, saunas have electric heating systems but in the countryside and in the leasure homes along the country’s 200,000 lakes, they are still heated up with logs burning in traditional stoves.
For decades, there has been two big sauna equipment producers and stove makers in Finland. These companies are called Harvia and Narvi.
Their owners were, and still are, among the richest people in Finland.

 

Photo: Harvia sauna

On Wednesday, December 3rd, the main headline in all the news sites of the U.S. was the mass shooting that happened in San Bernandino, California.
The most read story of the site of the main daily newspaper of Finland, Helsingin Sanomat, was about saunas. It was a column of the paper’s correspondent in Britain who wrote about her friend who wanted to have a Finnish sauna in her in her backyard in London.
“Ordering a sauna from Finland was not possible – why don’t Finns want to make money?” This was the headline of her story (roughly translated).
The text itself told that a Finnish-British family who tried to buy a Finnish sauna from Finland to London didn’t even receive an answer to their requests for offers from the Finnish sauna and stove makers.
Instead, a German sauna maker – with no roots in Finnish sauna tradition – answered immediately and finally built the family a Finnish style sauna with an electric heater.

 

Finnish readers were very upset about the story. Not only did it tell that foreigners were selling our tradition but it also told that Finns cannot make money abroad – even in the case when it should be really simple. The country’s economic situation is very worrying. Unemployment is in rise. Trade is slowing down.
And Finns let Germans sell the products that should be our national pride!
I wasn’t surprised to read this sauna story.
In Los Angeles, I met a Finnish film maker who told me what happened when he wanted to build a sauna to his backyard in Hollywood. He is a wanna-be carpenter and did all the wood work himself. He had his sauna in a garden shed, and finally only the heating system was missing. He wanted to buy a Finnish stove. He couln’t get one.
He bought a Swedish electric stove.
What a shame.

 

So what are the Finnish sauna makers doing? I decided to find out.
Money, is the first answer.
The sauna company Harvia’s profit margin has been between 20 to 25 percent every year since 2010. The company started in year 1950 as a small local stove maker and grew until the first years of new millennium.
The owners – a family with name Harvia – then reported that is was the as big as it can get in Finland. The family sold the company to an international investment company, and the company started to grow again.
Its’ net revenue was €40 million in 2010, and €44 million in 2014.

Narvi, the other main sauna brand, is not doing that well. It is a company with good financial standing and high gearing ratio – but for how long?
Last year its net revenue was €6,7 million. The net revenue reduced from the previous year 18 percent. At the same time Narvi made a loss of €282,000, and in 2013 the loss was even bigger: €1,9 million.
In its’ website, Narvi boasts about being “currently the only large producer of sauna heaters in the market, whose entire product range is designed and manufactured exclusively in Finland”.

 

Keeping the production exclusively in Finland is obviously not that good idea.
Harvia, the profit-making sauna maker, has opened factories in China, Russia and Estonia. They have a sales office in Hong Kong.
The CEO of Harvia told a reporter of Helsingin Sanomat this year, that Asians do not yet ask for a Finnish sauna built in their homes. But Harvia is doing business with hotels. If a hotel wants to have five stars, it needs to have a sauna.

Harvia may have a good reason to ignore one or two Finnish expats wanting to buy a Finnish sauna. Harvia is busy in Asia.
But the sauna maker Narvi, who wants to keep its production in Finland… What on earth keeps it from selling its’ products abroad?