The War on Low End

When I was strolling in a shoppping complex after dinner, I came across the new low-end handset by Motorola, the Motofone, as shown above. This phone has a retail value of RM199 (~ US$55) for the original set. I saw price that went as low as US$32 in some foreign websites.

Here we have Motofone, the latest phone from Motorola that aims to wage war on the low-end (aka cheapo) markets. However I can see a few problems with this approach:

• This destroys the hard-earned cool-gadget brandname won by the Razr family. Consequently when people mention Motorola handsets, words like 'cheapo', 'tacky', and 'low-end' come into mind faster than I can say "Mary cooks the little lamb".
• The low-end market has very little head room for profit margin.
  

Will this strategy work? Let's see what are the components of handphone sales:

1. Existing handphone owners wanting to upgrade/replace/get one more phone
   
2. New customers
   

For people in category 1, I assume the cash cows are those who like to 'lead the pack' and upgrade their phones frequently, while the contributions are assumed relatively small for the rest (e.g. those who replace their stolen/broken phones, or those who need a second phone, etc.)
Will Motofone and family appeal to the cash-cow group?

"Look guys, I just got a new cool Moto handphone, it has monochromatic six-segment-display-ish screen, and..., and..., well, nothing else. Hey, better still it comes with Walmart's everyday low-price guarantee."

Here Motorola is targetting the new customers in developing countries. Yes the markets are largely undeveloped, but in order to win, a company must have extremely strong cost-control for a profit, and hoping other handset makers will not jump in (especially companies with significant cost advantages). In other words, low-end market is a bone with abysmally thin of meat attached. Motorola is chewing this bone and trying to scrape every bit of meat in sight. It gotta chew tonnes of these to get a decent meal.


Disclaimer: Though I am quite sarcastic and cynical on the company strategy, personally I do think Motofone is a good start for handphones: it is just a plain, simple phone equipped with the necessary features: phone calls, sms, long battery hours. This is what I want from my handphone. Do I need more? No.

Helping the Poor

We usually just contribute to charity without further thoughts. But have you ever considered various options you have and the consequences?

Suppose:
We have a sum of money allocated for philanthropic purpose. This money can help a finite number, N of poor people.

Q1: First we need to decide who we want to help: poor people in your own country, poor people in your country of residence (a country you are not a citizen, but nevertheless you plan to stay permanently or semi-permanently), or poor people in other country X, with assumption the poor people in all these countries are similarly 'poor' (say, with annual income less than some amount). To whom you will give the money to?

Q2: Now, suppose country X is a poor third world country: Kenya, Luwanda, Somalia. Will your decision change? If so, why?

Q3: Next, suppose country X is a first world country: Norway, Switzerland, or US. What is your answer? (There are needy people everywhere, let's suppose they deserve the help)


My answers:

A1: Poor people in my country of residence
A2: Poor people in my country of residence
A3: Poor people in my country of residence

My answers are pretty controversial, because A1 and A3 are totally againt patriotism, while A2 is against the spirit of humanitarianism.

But before we proceed further, first let's remind ourselves that these poor people are equally poor and similarly needy. No one group is better off than the others. We can only help N people, the remaining question is where.

I made these decisions in a totally rational way (also known as the economist way, or the cold, mean, and calculative way). My rationale is as follows:

By helping those in my country of residence, first I will help reducing the crime rate somehow because I am convinced crime is closely-linked with poverty. I am not implying poor people are bad guys, just that poverty tends to push otherwise honest and hardworking people into committing crimes. Reduced crime rate not only will make me feel safer, it will attract investments as well as foreign talents, thereby improves the economy.

Second, when we can get more families out of poverty and more poor kids to receive education, we have increased the size of talent pool and reduced the number of people who depend on national safety nets like social security. This will cause a positive multiplying effect and further propel the society ahead. With all these, the multiplying effect will ripple through and benefit most people in that country. This is an upward, constructive cycle and a win-win situation to both the myself and the country.

When the I am better off, I will be able to give more.

If I have done otherwise, I don't think the effect will be the same.

Note: For Q3 on donating to the poor in advanced country, I guess most people will choose not to donate, with thinking like "Hack, they got the social security in place.", well, if these mechanisms work, why there are still poor people in those countries in the first place? sigh...

I appreciate if you could share your answers, comments or thoughts

The Harvard Investment Advice?

Recently there is an article in The Economist on investments using university endowments.

The investment returns from the endowments keep beating the markets year after year at an average rate of 10.7%. The high-flyers include MIT (23%), Yale (22.9%), and Harvard (around 15%) are having returns that continuously defy the efficient market hypothesis.

Most people may conclude this phenomena is due to the advices and guidances from strong faculties in the respective universities.

Well, not quite...:

"According to one former Harvard official, its endowment fund has done so well because it has avoided taking advice from the economics faculty."

I find this both amusing and illuminating. The best advice is not to listen to any?

P/S: Original article is here, but it may not work because this is a paid subscription.

Local Optimization vs. Global Optimization

Updated Jan 18, 2006

A hypothetical economy has the following industries: farming, fishing, quarrying, and mining.

Question 1:
Does maximizing the output of all industries will yield optimum economic value for that particular economy?

I have been pondering upon this when I was stuck in front of an ultra-long waiting time traffic light on my way to badminton.

What do you think?

Tentative Solution:
For now we assume

1. The activities of each industries will have no side-effects i.e. no environmental problems due to over-farming, no landslide due to over-mining, etc.

With the above assumption, local optimization tends to be globally optimum.

Even if we extend the time horizon, it seems optimized subsystems will yield a globally optimum system. However this is just my gut feeling.

Question 2 (Renewable Resource):
Zoom into the fishing industry and consider it as a system. Subsystems are the individual fishermen.

Will optimize outputs of all fishermen will yield maximum output for the fishing sector?

Tentative Solution:
In the short run, yes, maximizing individual fisherman will maximize the output. However in the long run, indiscriminated fishing will deplete the sea resources, therefore ultimately the fishermen will have diminishing returns, which is not desirable.

In this case, maximizing local subsystems will not yield a global optimum.

And we are bordering on game theory. Let's look at Prisoner's Dilemma:

2 felons have committed a crime and are caught. The police can convict them for 10 year jail time only if they testify each other. Or else the police can only charge them with a minor crime which will jail them for 5 years.

The police put the two persons in different locations and offers each of them a deal: if he testifies against his accomplice, he will be freed on the spot while the other will get the full sentence (10 years of jail time). Each of them is told the other person is offered the same deal as well.

For each of these felons, he is only interested in his own welfare, and he is aware of the deal is offered to the other person. In order to optimize his own welfare, he will choose to testify against his accomplice. However, optimizing of individual will make the situation worse, which is similar to the fishing example we see above. Therefore local optimization is not equal to global optimization in this case.

Question 3 (Non renewable resources):

Homework question. :P

BRIC?

Quiz time:

1. BRIC stands for:
a) Britain, Romania, Italy, Chile
b) British Resident Identity Card
c) Brazil, Russia, India, China
d) Don't know

2. In Dec, US has a strong employment rate and falling oil price. If this continues, what will the Fed most probably do?
a) Interest rate to go up
b) Interest rate to go down
c) Interest rate will stay to support the growth
d) Don't know


This quiz is on globalization and general economics (more on the macro side). Answers:
1) c
BRIC stands for the emerging countries: Brazil, Russia, India, China. The characteristics of these countries are relatively low income per capita, flourishing economies, large pool of talents, governments are encouraging foreign direct investments, and a lot of potential customers. If you don't know this term, you aren't tuning in to the globalization wave.


2) a
The Fed will rev up the interbank loan interest rate to suppress spending, and thus to prevent the economy from overheating.