The entrepreneur section of Forbes.com released its Small Business Outlook for 2008 and there are a couple of sections that I found enlightening and somewhat humorous. Click here to see the lineup of articles. Of particular note are the top 10 biggest business blunders of all time and the top 10 risks that will keep you up at night!
No-Match Saga Continues
In August 2007, a long awaited “no-match letter” regulation from US Immigration and Customs Enforcement was released. It quickly was challenged in court and the rule was barred from taking effect by a federal district court. Yesterday, DHS released a proposed rule that makes very few actual changes to the previously released rule and instead attempts to address procedural questions raised by the court in its preliminary injunction.
The rule describes the obligations of employers when they receive no-match letters from the Social Security Administration or receive a letter regarding employment verification forms from the Department of Homeland Security. The rule also provides “safe harbors” employers can follow to avoid a finding the employer had constructive knowledge that the employee referred to in the letter was an alien not authorized to work in the US. Employers with knowledge that an immigrant worker is unauthorized to accept employment are liable for both civil and criminal penalties.
The rule finalized a proposed rule released on June 14, 2006. The Department of Homeland Security, ICE’s parent department, received nearly 5,000 comments on the rule from a variety of interested parties including employers, unions, lawyers and advocacy groups. According to DHS, the opinions were highly varied with both strong opposition and support being enunciated. DHS also held a meeting with business and trade associations to discuss the proposed rule.
Why did the court block the rule from taking effect?
The rule was challenged in court prior to it taking effect in September 2007 and a judge issued a preliminary injunction on three grounds:
(1) DHS failed to supply a reasoned analysis justifying what the court thought was a change in DHS’ position – that a no-match letter may be sufficient, by itself, to put an employer on notice that its employees may not be work authorized;
(2) DHS exceeded its authority (and encroached on the authority of the Department of Justice) by interpreting anti-discrimination provisions in the Immigration Reform and Control Act (IRCA); and
(3) DHS violated the Regulatory Flexibility Act by not conducting a regulatory flexibility analysis.
How has DHS attempted to address the court’s objections?
On March 21, 2008, DHS released a supplemental proposed rule designed to address the court’s concerns. DHS is hoping that the court will overturn the preliminary injunction and allow the agency to implement the proposed rule. The agency is also continuing to appeal the court’s order. The agency is providing 30 days for comments.
In the proposed rule, DHS first addressed the court’s concern that that agency had failed to provide a detailed analysis explaining the agency’s new position that no match letters are an indicator of unauthorized status.
DHS first cites a number of sources indicating that Social Security numbers are being used to gain employment authorization by people unauthorized to work. It included quotes from the 1997 report of the US Commission on Immigration Reform and also cites reports issued by the Government Accountability Office and the Inspector General of the Social Security Administration.
It also notes that the industries most affected by the rule have admitted that much of their workforce is unauthorized and millions of employees have used false numbers. Finally, the agency cites to public and private studies confirming that a sizeable portion of employees identified by no-match letters are working illegally in the United States.
DHS cites two other justifications for the law. First, many employers fail to respond to no-match letters because they fear being accused of violating anti-discrimination rules if they react inappropriately to them. The no-match rule would provide protection from such liability if the employer follows the requirements of the regulation.
Second, many US citizens and aliens would benefit by being notified of problems in the Social Security database and being able to get proper credit for their earnings. US citizens would also benefit, according to DHS, by seeing an expansion of employment opportunities as a result of unauthorized employees being terminated for not providing a valid Social Security number.
DHS then describes in the rule a series of rulings and opinions by the agency that it believes show the agency has had a consistent position on no-match letters. But the agency states that even if it concedes that it is taking a new position, it meets the requirement to show a reasoned analysis justifying the chance in policy.
In this case, it states that the “most basic justification for issuance of this rule – and for the “change” in policy found by the district court – is to eliminate ambiguity regarding an employer’s responsibilities upon receipt of a no match letter. Absent this rule, employers have been taking very different positions based on DHS’ ambiguous statements.
DHS also defends the rule by pointing out that only employers with more than 10 employees identified with no-matches get SSA no-match letters and only if the percentage of no-matches exceeds .5% of the employer’s work force.
With regard to the question of usurping the Justice Department’s anti-discrimination enforcement authority, DHS insists that its rule does not interfere with “the authority of DOJ to enforce anti-discrimination provisions of the INA or adjudicate notices of intent to fine employers.”
It also specifically rescinded statements from the August 2007 rule’s preamble describing employers’ obligations under anti-discrimination law or discussing the potential for anti-discrimination liability. That includes the statement “employers who follow the safe harbor procedures…will not be found to have violated unlawful discrimination.”
With respect to the regulatory flexibility analysis, DHS takes the position that the rule is a voluntary safe harbor rather than a mandate. Hence, the rule does not require a showing that employers will not be significantly impacted economically.
However, the agency claims it is going to comply with the judge’s ruling by providing an initial regulatory flexibility analysis (IRFA). They have provided a very cursory summary of the analysis in the proposed regulation, but DHS says it will provide a full analysis in the docket of the rulemaking.
DHS claims that it has been stymied to some extent in providing a highly specific analysis because the Social Security Administration has denied its request for the names and addresses of the companies already identified by SSA in its preparation to release no-match letters pursuant to the August 2007 regulation.
SSA reminded DHS that this disclosure would actually be illegal under taxpayer privacy laws. SSA did, however, provide more general information including a table showing the distribution of employers slated to receive no match letters in 2006. DHS estimates it will cost employers anywhere from $3,009 to $33,759 depending on the size of the employer and the percentage of current no-match employees assumed to be unauthorized. DHS does not believe these costs constitute a “significant economic impact.”
DHS notes that the costs associated with losing an employee as a result of the rule are due to the Immigration and Nationality Act itself and not the new rule. However, the agency does not mention “false positives” where employees authorized to work are incorrectly identified in a no match letter.
The agency did not account for costs associated with losing employees not being able to resolve problems within 90 days, something that critics fear will become common as hundreds of thousands of people attempt to resolve problems at the same time under the new rule.
DHS did site the following costs: labor cost for human resource personnel, ce
rtain training costs, legal services and lost productivity.
Did DHS mention any changes to the August 2007 rule in its proposed rulemaking?
DHS only announced two relatively minor changes. First, DHS changed the rule require that employers “promptly” notify affected employees after they are unable to resolve a mismatch through internal checks. Employers would now be given five business days to notify employees.
Second, DHS makes clear that employees hired before November 1, 1986 are not covered by the no-match rule since these workers are not subject to IRCA.
Source: The Immigration Portal, www.ilc.com
Promotional program impacts
Several in the Green Industry have postulated regarding the impacts of generic promotion programs and there are rumblings (at least there were before the economy slowed) of another industry-wide generic promotional program surfacing. It behooves us to consider all of the case study experiences before embarking on such a task. To that end, the most recent HortScience contained an article analyzing the effectiveness of Texas citrus promotions that also has some interesting insights for other commodity promotion programs.
This study finds that Texas citrus promotion programs have effectively enhanced shipments of Texas grapefruit and that the benefits of the promotion efforts in terms of increased grapefruit industry revenues are greater than the costs. The study also finds that the promotion programs have had no statistically discernible effects on Texas orange shipments and, hence, have not generated returns to Texas orange growers. Although specific to the promotion program of Marketing Order 906, these results provide some important insights for the operation and management of other commodity promotion programs, particularly those at the state or regional level:
Growers in a particular state or region can successfully promote the demand for their products if they are sufficiently differentiated from those produced in other states or regions as in the case of Texas grapefruit. However, funds invested in promoting homogenous, undifferentiated commodities like Texas oranges are unlikely to stimulate a shift in consumer demand for those commodities.
Even for undifferentiated commodities like Texas oranges, however, advertising can enhance buyer loyalty by reducing their price responsiveness. As a result, a weather-induced run-up in price, for example, is less likely to drive buyers to alternative sources of the product.
The gains from promotion can dissipate quickly if the marketing order or other commodity promotion group fails to at least maintain its level of promotion funding from year to year.
How a marketing order or other commodity promotion group chooses to allocate its promotion funds among alternative promotion activities can influence the effectiveness of the funds in enhancing demand. In the case of Marketing Order 906, a shift in promotion strategy away from merchandising to public relations likely contributed to a decline in the effectiveness of promotion activities.
Consumer preferences for container gardens
A recent article published by Dr. Terri Starman (TAMU) et al. in the April 2008 issue of HortScience is entitled Consumer Preferences for Price, Color Harmony, and Care Information of Container Gardens. The abstract of the article’s findings is below.
Retail sales of container gardens have increased dramatically in recent years, rising 8% from 2004 to 2005, to $1.3 billion. The objective of this study was to determine consumer preferences for three attributes of container gardens; color harmony, price, and amount of care information provided with the purchase. A hierarchical set of levels for each attribute was used in a 3 x 3 x 3 factorial conjoint analysis.
A Web-based survey was conducted on 18 Oct. 2006 with 985 respondents. Survey participants were asked to complete a series of questions on a 7-point Likert scale. Survey participants also answered questions about past experiences with and future purchase intentions of container gardens as well as demographics. The three attributes accounted for 99.8% of the variance in container garden preference. Relative importance decreased from price (71%) to amount of care information (23%) to color harmony (6%).
Survey participants preferred a container garden with a price point of $24.99, extensive care information, and complementary color harmony. A large portion (76%) of participants in this study indicated that they would be more likely to purchase a container garden if extensive care information was included with the purchase and 85% of participants said they would be willing to visit an Internet Web site that would provide more information on how to care for and maintain a container garden.
Results of this study show that there is a potential to increase the value of a container garden through providing educational material with the purchase.
Trouble comes in threes…
Yesterday was a busy day. Not only did reports focus on the record housing price decline and the precipitous drop in the consumer confidence index, but current trending of the value of the dollar indicates some very interesting economic conditions. Increasing numbers of economists are predicting that the economy has entered, or will soon enter, its first recession since 2001.
On the other hand …
The Standard & Poor’s 500 Index gained 0.2 percent yesterday as a rally in commodity producers helped offset the decline in consumer confidence. In addition, existing-home sales climbed for the first time in seven months during February as buyers took advantage of sharply falling prices. Home resales rose to a 5.03 million annual rate, a 2.9% increase from January’s unrevised 4.89 million annual pace according to the National Association of Realtors.
While the rise in home sales is encouraging, given the weakness in other housing-related data and continued problems in the housing market, it is too soon to say that this sector is bottoming out.
It’s also too soon to throw in the towel on the economy. Though weak, we are hardly in a state of collapse. Robert Samuelson provides yet another interesting commentary in this regard. He states “…most markets self-correct. As housing prices fall, more buyers come into the market; sales and construction revive. If inventories get too high, production slows and surpluses are sold; then production accelerates. If consumers or businesses are overindebted, they reduce spending to repay loans; spending speeds up when debt burdens drop.
In other words — stay the course.
Behaviorial Economics 101
James Gilmore and Joseph Pine run a consulting firm called Strategic Horizons that has an almost cultlike following in the business world because of their ability to accurately predict consumer sentiments. Nine years ago, in their first book, they argued that businesses had to start selling experiences—not mere products—in order to survive the new economy.
The Experience Economy: Work Is Theatre & Every Business a Stage made the case that goods and services were being so thoroughly commoditized by Wal-Mart and the Internet that companies would fail unless they could create such diverting shopping experiences that customers would pay more for the same stuff they could buy for less elsewhere.
In their new book Authenticity (Harvard Business School Press), they argue that the virtualization of life (friends aren’t friends unless you “confirm” them on Facebook; reporters are now all bloggers, and vice versa) has led to a deep consumer yearning for the authentic. America has “toxic levels of inauthenticity.”
Inundated by fakes and sophisticated counterfeits, people increasingly see the world in terms of real or fake. They would rather buy something real from someone genuine rather than something fake from some phony. When deciding to buy, consumers judge an offering’s (and a company’s) authenticity as much as–if not more than–price, quality, and availability. G&P; argue that to trounce rivals, companies must grasp, manage, and excel at rendering authenticity.
So how can companies deliver authenticity? What businesses will survive our jaded new form of capitalism? Gilmore and Pine offer two approaches. First, companies can strive to be transparent and exactly what they say they are. Chipotle Mexican Grill—”Food with Integrity”—goes for this approach, as does Honest Tea, the clothier Anthropologie, and Ethos water. These companies use the holier-than-thou strategy.
Want to know the other stategy? Read the book. It’ll be well worth the time.
From the website:
Through examples from a wide array of industries as well as government, nonprofit, education, and religious sectors, the authors show how to manage customers’ perception of authenticity by recognizing how businesses “fake it;” appealing to the five different genres of authenticity; charting how to be “true to self” and what you say you are; and crafting and implementing business strategies for rendering authenticity.
Latest Floral Trend Tracker
SAF’s Spring 2008 Floral Trend Tracker was released yesterday (see http://news.safnow.org/saftt/issues/2008-03-20/index.html). Some of the highlights included:
- “During hard economic times consumers might not want to buy a BMW or other luxury items, but there are still people getting married, babies born and funerals to service,” she says. “There is always a need for flowers.”
- “Flowers and plants are a terrific, cost-effective way to express human emotion across all life occasions,” Williams says. “As business owners, we need to promote that.”
- Businesses in all industries are beholden to what’s known as a value proposition — the reason, or reasons, a customer should buy your goods and services and not someone else’s.
- Surviving during an economic slowdown might also entail acquiring the customer base of recently defunct local florist business to help support existing overhead expenses.
- “Recessions can cause a lot of financial pain. The quicker you can react, the better. Monitor your sales monthly compared to the previous year. Whatever trend you see, project that into the future and make staffing adjustments accordingly. Keep marketing and promoting, but be realistic about what is happening that is out of your control.”
- Exchange rates influence the trade balance by changing the demand for domestically produced and imported goods and services. A strong dollar will lead to an increase in the trade deficit, because it lowers the price of imports and makes domestic consumers more willing to buy goods from overseas. It also will make U.S. goods more expensive in overseas markets and therefore export growth will be weak. By contrast, a weak dollar will raise the price of imported goods and consumer demand for those goods will fall. U.S. exports abroad will increase since the weak dollar lowers the prices of U.S. goods in foreign markets.
- A weak dollar makes it more expensive for U.S. consumers and producers to buy foreign goods and services so some will shift to buying domestically produced products instead, which are now relatively more affordable. This increases demand, which is good, but can also lead to an increase in inflation, which is bad. Nor does this increased consumption help every industry, since many service industries see little competition from overseas and will therefore see little change when the dollar depreciates, or falls in value relative to other currencies. Also, companies that depend heavily on foreign markets for their inputs also will suffer from higher import prices, since they increase the cost of production.
- This economic softness, which many expect will evolve into a recession, is different than the last two recessions, which were both relatively mild and brief. The 1991 and 2001 recessions came about as the Federal Reserve tried to put a lid on rising inflation. It pushed rates high enough to cause the slowdown that it believed would reverse the inflationary trends. With a slowdown in evidence, it changed course and allowed rates to decline, initiating the economic recoveries. But that’s not today’s story. Rates were already low when trouble became evident last year, as housing prices began to decline and mortgage financing tightened up. Lower interest rates from the Federal Reserve can’t directly solve the problem of falling asset prices, but it can provide some cushion.
- Over the past year, inflation has jumped. In the past twelve months, the Consumer Price Index is up 4.3%. Those are the kinds of readings that should ring alarm bells, on Wall Street and in the Federal Reserve boardroom.
- On the positive side, we started this re-evaluation of real estate in a fairly healthy economic environment. The unemployment rate has been low, though it’s inching up of late, standing today at 4.9%. Meanwhile, export growth (thanks to the low value of the dollar) and business spending are robust, although weakening credit conditions suggest that business spending in the months ahead will be more restrained.
Two recent seminars you might find interesting!
Two recent seminars you may find interesting:
- Dr. Natalia Dudareva, Wickersham Chair of Excellence in Agricultural Research, University Faculty Scholar, Professor, Dept of Horticulture and Landscape Architecture, Purdue University, West Lafayette, IN presented Floral Scent: Gateway to Original Creation. Click here to view.
- Dr. Rick Schoellhorn, Director of New Products, Proven Winners L.L.C., Alachua, Florida presented New & Unique plants – Ready, Set, Go: Discovery, Development, Release, Pandemonium! Click here to view.
Also, our fifth lecture in the Distinguished Lecture Series on International Floriculture will be presented by Dr. Peter Bretting, the USDA/ARS National Program Leader for Plant Germplasm and Genomes. The title of his Lecture is “Horticultural Genetic Resources: Current Status and Future Prospects“. A reception will be held at 2:30 p.m. in the Texas A&M; Horticulture/Forest Science Building atrium on Wednesday, April 9, followed by his Lecture at 3:00 p.m. in room 102 HFSB.
Dr. Bretting has been USDA/ARS National Program Leader, Plant Germplasm and Genomes since 1998, and was promoted to the rank of Senior National Program Leader in 2004. This position involves co-leadership, coordination, and direction of a national program of crop genetic research conducted at more than 50 locations nationally, with an annual budget of approximately $120 million. He also serves as a USDA representative for the US government delegations negotiating the UN-FAO International Treaty for Plant Genetic Resources for Food and Agriculture, and the UN-UNEP Convention on Biological Diversity.
His areas of research specialization and professional interest include: 1) Administration and management of scientific research, development, and service organizations; 2) Plant genetic resource management, emphasizing statistical genetic and molecular marker approaches to managing germplasm; 3) Crop genetics, genomics, systematics, and economic botany, with particular emphasis on maize, sunflowers, and new crops, especially ornamentals.
He is the co-editor of one book and a collection of papers, and the author or coauthor of numerous scientific publications. His research has been supported by grants from government and industry. He has served as Associate Editor of two international journals, and on the editorial boards of two others. With three other Iowa State University or USDA/ARS scientists, he taught “Plant Genetic Resource Management,” a graduate level course at Iowa State University during the 1990s.
The Distinguished Lecture announcement can be found online at http://ellisonchair.tamu.edu/lectures.html.
The "Unambiguous" Recession Won't Hold Me Back!
The United States is “unambiguously” in a recession, a New York-based forecasting group said on Thursday [3/20/08], citing a nine-month decline in its weekly measure of the economy. The Economic Cycle Research Institute, which correctly predicted the 2001 recession at a time when many on Wall Street still maintained a rosy outlook, said their numbers indicate the economic contraction is already under way.
The recession call puts ECRI in line with a growing number of economists who believe the U.S. is already in recession, with some citing December as the likely start date of the downturn. Martin Feldstein, who heads the highly-regarded National Bureau of Economic Research, has said not only that contraction is under way but also that it could be severe.
And yet, spring is in the air, at least in the South. One step out the front door, putting aside the glare of the computer screen for a moment, elicits an anticipation of buds blooming, birds and butterflies arriving, and cash registers ringing at the local garden center. My box of wildflower seed has arrived, my wish list of plants is nearly finished, and I have big plans for a landscape that has way too much grass. Recession or not, I am about to spend some big bucks transforming the cookie cutter landscape around my new home into my own ‘America in Bloom’ project!
I wonder, just wonder, if there might be other ‘recession resistant’ spenders like me out there? Yes, I know, I have pontificated on this subject before (go to the sidebar of this blog page and click on ‘recession’). But it’s time to put every bit of marketing savy you can muster into motion this spring and test the theory once more. And with a little rain in the right places at the right times (on weekdays please), we might just live to garden another day.
The Fed Did What???
This will be a long post. In an unprecedented move over the weekend, the Fed bailed out the 5th largest investment bank, Bear Stearns, by providing backing for its sale to JPMorgan Chase. This action is particularly unusual given that a single firm is the target of this bailout strategy, something that hasn’t happened since the Great Depression.
There are only two times that I can recall in recent history that the Fed has intervened in a psuedo-similar fashion and in neither case was a single entity involved. Interestingly, while most economists and politicians loathe public bailouts, in both cases the federal government ulitimately made money on them.
The first was during the 1995 peso crisis, when the Clinton administration offered Mexico $20 billion in loans, with the country’s oil revenues as security. The International Monetary Fund offered another $18 billion. Critics condemned the loans as a bailout. However, in the end, Mexico did not require the entire amount, the country’s finances recovered, and the U.S. ended up making a profit on the interest payments.
The other situation of similar intervention came when the government turned a profit from the Air Transportation Stabilization Board, an entity set up after the 9/11 attacks to support the airline industry. The board utlimately provided a total of $1.56 billion in loan guarantees to six carriers. The government earned just under $350 million from fees and stock sales, according to the Treasury Department.
So what was special about this situation? How did the situation get this bad? John Waggoner and David Lynch offer this succinct explanation:
Bear Stearns failed because its investors no longer believed it could repay its loans — even its short-term, overnight loans. Even worse, investors concluded the bank no longer could stand behind the complex agreements it had with other financial institutions. And Bear Stearns had a web of intertwined agreements with other banks, investment houses and corporations.
So while its demise could send ripples through the economy, its significance helped lead the Federal Reserve to support JPMorgan Chase’s offer for Bear Stearns. As part of the deal, the Fed agreed to fund $30 billion of Bear Stearns assets that would be difficult to sell quickly, raising the possibility that taxpayers could be on the hook for part of the bailout.
The road to Bear Stearns’ collapse — and the Federal Reserve’s response to it — began with the housing bubble. As home prices soared to economically unsustainable levels, fewer people could afford to buy. In response, banks and other lenders created new types of mortgages, which made loans affordable to people who normally wouldn’t qualify for a conventional 30-year mortgage.
The beauty of these subprime mortgages, at least from a mortgage broker’s point of view, was this: Banks and brokers collected fees for closing the deals but faced no risk once they sold the loans to Wall Street.
Wall Street was eager to buy subprime loans, mix them with other types of debt, package them into complex securities and sell them to other investors. As long as housing prices continued to soar, everything seemed fine. Borrowers in shaky loans could refinance their loans or sell their homes for big gains. Investors in the new securities that Wall Street created could enjoy rich interest payments.
Once the housing market started to fall, though, borrowers started to default on mortgages. As defaults piled up, the complex securities Wall Street had created from those mortgages began to crumble. More and more lenders grew wary of making loans, especially if the collateral was mortgage-backed securities.
Bear Stearns was one of the biggest underwriters of complex investments linked to mortgages. Two of its hedge funds, heavily invested in subprime mortgages, folded in July. Bear’s investors became increasingly reluctant to do business with the company. Despite the company’s assurances that it had plenty of cash on hand to continue operations, it collapsed Friday.
The story of Bear Stearns isn’t just a saga of a spectacular Wall Street failure. The company’s failure signals far deeper problems with the nation’s economy and raises questions about the consequences of Bear Stearns’ problems for ordinary Americans.
So how will all of this affect you???
The yields on money market mutual funds and bank deposits will fall, as the Fed continues to cut interest rates. Stock prices will continue to be extremely volatile. The good news is that financial markets have not collapsed. The stock market bounced back on Tuesday, with the benchmark S&P; 500 experiencing its best day since October 2002.
The value of the U.S. dollar will continue to sag, thanks to lower interest rates. As interest rates here fall, global investors sell their dollar holdings to find investments with higher returns. That pushes the dollar’s value lower — meaning Americans face higher prices.
Notable quotes that I think reflect the underlying current of these recent events:
“Recessions are almost always crisis of confidence, and that’s what we’re having right now” — David Wyss, chief economist at Standard & Poor’s.
“The market was being run by mathematicians that didn’t know financial markets. And you keep hearing… ‘that event should only happen once every hundred years, according to my model’. But those every hundred years events are coming along every two or three years, which should raise some questions.” — Former Federal Reserve Chairman Paul Volcker.