You are familiar with Zen koans like "What is the sound of one hand clapping?". They are designed to open up consciousness with paradoxical or impossible questions. Well here's one: Can we have an economy that is not so dependent on rampant consumer spending?
After 9/11, Bush's solution was to exhort consumers to spend more as the way to propel ourselves out of the downturn. Today we are hearing similar advice.
Problem is, people are saving (or at least not spending, which I don't think is quite the same thing) rather than spending.
According to a report on radio show Marketplace, this is causing serious problems. On the heels of yesterday's announcement that Macy's is laying off thousands of workers:
Chalk the Macy's announcement up to a number out from the Commerce Department. Consumer spending fell for the sixth straight month in December. See, the financial crisis has convinced Americans to try something a little different -- it's called saving. But now this sudden attack of thrift is having dire economic consequences.
As Marketplace's Steve Henn tells us, the worst part is that it could be habit forming.
STEVE HENN: It's good to save some money. But when everyone starts saving at the same time, it can be an economic disaster. Goods pile up on store shelves, companies cut back on production and lay off workers. Then consumers pull back even more.
[...]
Greg McBride at Bankrate.com says the unemployment rate is only 7 percent, however . . .
GREG MCBRIDE: The other 93 percent think they might be next.
Economically secure consumers should be buying more. But McBride says fear is a powerful thing. It quickly changes economic behavior and might even break America's shopping habit.
I actually have great faith in the resiliency of the American shopping habit - despite downturns it has continued ever upward. But that's not necessarily a good thing. The past decade of consumer spending was unsustainable in two ways:
- We were spending beyond our means, on credit and using inflated house prices and equity
- We were (and continue) to buy at a rate unsustainable for the planet. The US is 5% of the world's population but consumers 25% of its resources. The domino effect is that China and others produce massive quantities of stuff for us in the US, which feeds their economies, their resource usage, their environmental impacts
Neither of these can be put back in place as we re-tool the economy. We need to figure out a way to have a large economy (nationally and globally) that does not rely on us buying more than we can afford, and making more than the planet can supply.
No answers here right this second. We need to all put our thinking caps on.
(Credit:
Dwi)
I asked my colleagues in frog design's Shanghai studio about their perspective on the current economic downturn, and here's what they wrote back:
"The US may be the initiator of this round of global economic recession but it may not be the final payer. China's economy is about to suffer as well - and in more ways than one.
And yet, the people who have been around the longest know not to pay too much attention to one-direction comments. They know that the sufferers will always shout much louder than the beneficiaries. They also know that there are ways to take advantage of the economic downturn.
In China, the rule of the game is always "Stay One Step Ahead of Your Competitors." There are some companies in this country - mostly the ones that operate domestically only - that will remain silent. Culturally it's what they've always done and what they always will do when facing these situations. Other companies will be more pro-active.
For example, when Chinese businesses run out of initiatives in which to invest their capital or when their investments stop growing (which is happening in stocks and real estate, two markets that have yielded big returns in recent years), they make a concerted effort to get back to the basics and invest in research and development. In fact, senior executives in some companies have said publicly that in the near future they would either invest in their own health and personal happiness, or they would increase R&D budgets in their businesses to invest in better products to prepare for a new run when the downturn ends.
This may be a survival strategy - that is, a strategy shift from the short term to the long term - but surviving a crisis is better than suffering from it. While the current crisis is eliminating big and small market players still trying to eke out short term gains in the form of cost cutting measures, the survivors will ride out the crisis while positioning themselves to win in the long term. The economic recession in Hong Kong fifteen years ago is a great example. In 1993, business opportunity in Shanghai was largely non-existent, but that didn't stop one Hong Kong property developer from buying cheap land and developing it in the center of the city. He envisioned Shanghai as the hub of Asia and the future of China, and he turned out to be right. He now owns several of the buildings in the heart of the Central Business District. The real estate developer's strategic long-term vision not only saved his company from the economic recession in Hong Kong, it also made him one of the biggest market players in the mainland property market.
So, while big global marketers withdraw themselves from the game, Chinese brands have a good opportunity to step up by investing money in R&D and product innovation, which will bring to market world-class products. The entrepreneur spirit always involves a combination of risk taking and long-term strategic planning, and indeed, the Chinese people have proven themselves and excelled as entrepreneurs. The reformation opened China's door to the world, and the skyrocketing economy created a Chinese "Gold Rush" that lured the world to underpriced real estate, amenable trade laws, and a surge of capital into the stock market. Now the challenge for Chinese entrepreneurs is finding opportunity in more unconventional places.
It could be that in the coming months and years, businesses in China will reinforce the domestic market as a way to fend off the global reverberations from the economic downturn. Domestic companies could add Western assets at a good value. More importantly, though, China can leverage the economic gains it has made over the past ten years into more investments in domestic R&D and innovation. This puts a premium on vision and strategic planning instead of short-term financial risk taking, and ultimately, that's going to benefit everyone, even as some will suffer now."
(Credit:
Ravi Chhatpar)
This high-end designer boutique in a trendy part of Seoul sells these bags at higher than Louis Vuitton's full prices, which is not nearly as hilarious as Louis Vuitton's unique methods in fighting back counterfeiters these days. Just look at this fake set-up of a fake bag seller that sells real bags during a recent exhibit launch party in New York. (via Notcot)
(Credit:
QQ)
I just returned from a trip to Shanghai, and in case you didn't know anyway, here's my No. 1 insight: China scales.
Let's take QQ.com as an example, the leading Chinese online social network. The site is reported to have more than 300 million active accounts. That is eight times the member base of Facebook--and it's the same size as the U.S. population.
What's also remarkable (and different from the Western social networks) is QQ's monetization. Facebook posted revenue of $150 million for 2007 (and according to Plus8star a loss of $50 million); MySpace.com (purchased by News Corp. for $560 million) is projected to generate $750 million in revenue this year; and Bebo (purchased by AOL for $850 million) had revenue of just $20 million in 2007. While QQ reported revenue of $523 million and an astonishing operating profit of $224 million in 2007. The revenue distribution is unusual, too: 60 percent of the revenue came from services like games, an additional 21 percent from mobile services like ringtones, and only 13 percent from online advertising.
Do added value services trump ad based revenue models?
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